UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[ X ]    ANNUAL  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended              December 28, 2003
                          ------------------------------------------------------

                                       OR

[   ]    TRANSITION REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from                         to
                              -------------------------  -----------------------

Commission File Number:         000-17962
                       --------------------------

                         Applebee's International, Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                      43-1461763
---------------------------------           ------------------------------------
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)

                4551 W. 107th Street, Overland Park, Kansas 66207
--------------------------------------------------------------------------------
              (Address of principal executive offices and zip code)

                                 (913) 967-4000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common  Stock,   par
                                                            value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                       Yes  X     No
                                          -----     -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined by Rule 12b-2 of the Act).
                                       Yes  X     No
                                          -----     -----

The aggregate market value of the voting and non-voting common stock equity held
by  non-affiliates  of the  registrant  as of the last day of the second  fiscal
quarter ended June 29, 2003 was  $1,744,093,318  based on the closing sale price
on June 27, 2003.

The number of shares of the registrant's common stock outstanding as of March 8,
2004 was 54,567,964.

                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy  statement to be filed  pursuant to  Regulation  14A under the  Securities
Exchange Act of 1934 is incorporated into Part III hereof.

                                       1
<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 28, 2003
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                             Page
PART I
<S>             <C>                                                                                          <C>

Item 1.         Business................................................................................        3

Item 2.         Properties..............................................................................       13

Item 3.         Legal Proceedings.......................................................................       15

Item 4.         Submission of Matters to a Vote of Security Holders.....................................       15

PART II

Item 5.         Market for Registrant's Common Equity and
                      Related Stockholder Matters.......................................................       16

Item 6.         Selected Financial Data.................................................................       17

Item 7.         Management's Discussion and Analysis of
                      Financial Condition and Results of Operations.....................................       18

Item 8.         Financial Statements and Supplementary Data.............................................       28

Item 9.         Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure............................................       28

PART III

Item 10.        Directors and Executive Officers of the Registrant......................................       29

Item 11.        Executive Compensation..................................................................       29

Item 12.        Security Ownership of Certain Beneficial Owners and Management..........................       29

Item 13.        Certain Relationships and Related Transactions..........................................       29

Item 14.        Principal Accounting Fees and Services..................................................       29

PART IV

Item 15.        Exhibits and Reports on Form 8-K........................................................       30

Signatures..............................................................................................       31

</TABLE>

                                       2
<PAGE>



                                     PART I

Item 1.  Business

General

References  to  "Applebee's,"  "we,"  "us,"  and  "our"  in  this  document  are
references  to  Applebee's  International,  Inc.  and its  subsidiaries  and any
predecessor companies of Applebee's  International,  Inc. We develop,  franchise
and operate casual dining  restaurants  under the name "Applebee's  Neighborhood
Grill & Bar." With nearly 1,600 restaurants as of the fiscal year ended December
28,  2003,  Applebee's  Neighborhood  Grill & Bar is the largest  casual  dining
concept  in  America,  in terms of  number  of  restaurants  and  market  share.
Applebee's  International,   Inc.  maintains  an  Internet  website  address  at
www.applebees.com.  We make  available  free of charge  through  our website our
annual report on Form 10-K,  quarterly reports on Form 10-Q,  current reports on
Form 8-K, and all  amendments  to those  reports as soon as they are  reasonably
available  after these materials are  electronically  filed with or furnished to
the Securities and Exchange Commission.

We opened our first restaurant in 1986. We initially  developed and operated six
restaurants as a franchisee of the Applebee's  Neighborhood Grill & Bar Division
of an  indirect  subsidiary  of W.R.  Grace & Co.  In March  1988,  we  acquired
substantially all the assets of our franchisor.  When we acquired the Applebee's
Division,  it operated 13  restaurants  and had ten  franchisees,  including us,
operating 41 franchise restaurants.

As of December 28, 2003,  there were 1,585 Applebee's  restaurants.  Franchisees
operated 1,202 of these  restaurants and 383 restaurants were company  operated.
The  restaurants  were  located in 49 states and nine  international  countries.
During 2003, 100 new restaurants were opened, including 74 franchise restaurants
and 26 company restaurants.

We acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants and
four  specialty  restaurants in March 1995. In April 1999, we completed the sale
of the Rio Bravo Cantina concept and our four specialty restaurants. At the time
of divestiture,  we operated 40 Rio Bravo  restaurants and franchisees  operated
the remaining 25 restaurants.

Although we may acquire a new concept in the future,  our current strategy is to
focus on the Applebee's  concept. We currently expect that the Applebee's system
will encompass at least 2,300  restaurants in the United States with  additional
restaurant potential internationally.

                                       3

<PAGE>

The following table sets forth certain unaudited financial information and other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
<TABLE>
<CAPTION>

                                                                             Fiscal Year Ended
                                                            ----------------------------------------------------
                                                              December 28,      December 29,      December 30,
                                                                  2003               2002             2001
                                                            ----------------  ----------------  ----------------
<S>                                                           <C>                 <C>               <C>
   Number of restaurants:
       Company:
           Beginning of year...........................              357               310                285
           Restaurant openings.........................               26                26                 25
           Restaurant closings.........................               (2)              --                 --
           Restaurants acquired from franchisees.......               11                21                --
           Restaurants acquired by franchisees.........               (9)              --                 --
                                                           -----------------  ----------------  -----------------
           End of year.................................              383               357                310
                                                           -----------------  ----------------  -----------------
       Franchise:
           Beginning of year...........................            1,139             1,082              1,001
           Restaurant openings.........................               74                81                 84
           Restaurant closings.........................               (9)               (3)                (3)
           Restaurants acquired from franchisees.......              (11)              (21)               --
           Restaurants acquired by franchisees.........                9               --                 --
                                                           -----------------  ----------------  -----------------
           End of year.................................            1,202             1,139              1,082
                                                          -----------------  ----------------  -----------------
        Total:
           Beginning of year...........................            1,496             1,392              1,286
           Restaurant openings.........................              100               107                109
           Restaurant closings.........................              (11)               (3)                (3)
                                                           -----------------  ----------------  -----------------
           End of year.................................            1,585             1,496              1,392
                                                           =================  ================  =================

   Weighted average weekly sales per restaurant:
           Company.....................................        $  45,000         $  43,019          $  42,660
           Franchise...................................        $  45,271         $  43,823          $  42,241
           Total.......................................        $  45,205         $  43,641          $  42,334
   Change in comparable restaurant sales(1):
           Company.....................................              5.2%              1.8%               2.5%
           Franchise...................................              3.7%              3.6%               3.0%
           Total.......................................              4.1%              3.2%               2.9%
   Total operating revenues (in thousands):
           Company restaurant sales....................        $ 867,158         $ 724,616          $ 651,119
           Franchise royalties and fees(2).............          109,833           102,180             93,225
           Other franchise income(3)...................           13,147             2,688                --
                                                           -----------------  ----------------  -----------------
           Total.......................................        $ 990,138         $ 829,484          $ 744,344
                                                           =================  ================  =================



<FN>
(1)  When computing comparable  restaurant sales,  restaurants open for at least
     18 months are compared from period to period.
(2)  Franchise  royalties  are  generally  4%  of  each  franchise  restaurant's
     reported monthly gross sales. Reported franchise sales, in thousands,  were
     $2,725,179,  $2,519,373  and  $2,275,169  in  fiscal  2003,  2002 and 2001,
     respectively.  Franchise fees  typically  range from $30,000 to $35,000 for
     each restaurant opened.
(3)  Other  franchise  income  includes   insurance   premiums  from  franchisee
     participation in our captive insurance company and revenue from information
     technology products and services provided to certain franchisees.
</FN>
</TABLE>


                                       4
<PAGE>


The Applebee's System

Concept.  Each  Applebee's  restaurant is designed as an  attractive,  friendly,
neighborhood  establishment  featuring  moderately priced, high quality food and
beverage  items,  table service and a comfortable  atmosphere.  Our  restaurants
appeal to a wide range of customers including young adults,  senior citizens and
families with young children.

Applebee's  also offers its customers the convenience of carry-out  service.  In
2002,  we  initiated  phase one of a new two phase  "To Go"  program.  Phase one
included  the  use of  standardized  state-of-the-art  packaging,  interior  and
exterior  signage  and a focused  training  program.  Phase  two of the  program
features the additional convenience of our Carside To Go(TM) initiative in which
customers  place their  orders by  telephone,  park in  designated  spots at our
restaurants  and servers  deliver  their orders to their  vehicles.  In November
2003, we completed the  implementation  of the Carside To Go(TM)  service at all
company-owned restaurants where practicable.  The implementation of this service
will be substantially complete by the end of 2004 in our franchise restaurants.

We have set  certain  specifications  for the  design  of our  restaurants.  Our
restaurants are primarily located in free-standing  buildings, end caps of strip
shopping  centers,  and  shopping  malls.  Each  restaurant  has a bar, and many
restaurants  offer  patio  seating.  The decor of each  restaurant  incorporates
artifacts and  memorabilia  such as old movie posters,  musical  instruments and
sports equipment. Restaurants also frequently display photographs,  magazine and
newspaper articles  highlighting  local history and  personalities.  These items
give each  restaurant an  individual,  neighborhood  identity.  In addition,  we
require that each restaurant be remodeled every six to seven years to embody the
design elements of the current prototype.

Menu. Each restaurant  offers a diverse menu of high quality,  moderately priced
food and beverage  items  consisting  of  traditional  favorites  and  signature
dishes.  The restaurants  feature a broad selection of entrees,  including beef,
chicken,  pork,  seafood and pasta items  prepared in a variety of cuisines,  as
well  as  appetizers,   salads,  sandwiches,   specialty  drinks  and  desserts.
Substantially  all restaurants  offer beer, wine,  liquor and premium  specialty
drinks.  During 2003,  alcoholic  beverages accounted for 13.1% of company owned
restaurant sales.

Restaurant Operations.  We and our franchisees operate restaurants in accordance
with uniform operating standards and specifications.  These standards pertain to
the quality and preparation of menu items, selection of menu items,  maintenance
and  handling of food,  maintenance  and  cleanliness  of premises  and employee
conduct.  Our quality  assurance  department is responsible for establishing and
monitoring our food safety programs. We develop all standards and specifications
with input from franchisees, and they are applied on a system-wide basis.

Training. We have a comprehensive training program for restaurant associates and
managers.  The training  programs utilize a combination of on-the-job  training,
video,  computer and  print-based  materials.  Program  materials  are routinely
revised to reflect the most recent operational procedures and standards.

Restaurant  associates are provided with a structured  orientation  and five-day
training program upon hire. This training is provided by restaurant trainers who
have  completed  an  extensive  certification  process to become a  trainer.  In
addition,  associates  receive  ongoing  training to further  develop  their job
skills and knowledge.

Restaurant  managers  complete a 12-week  training and orientation  process upon
hire.  The  program  is  executed  at  certified  training  restaurants  located
throughout  the  Applebee's  system.  The training  program  provides  skill and
knowledge  training for key operations and  management  processes.  In addition,
ongoing training and development  programs are offered for experienced  managers
regarding leadership and operations management.

When opening new restaurants, a six-day training program is provided for all new
associates.  The training is conducted by certified,  experienced  trainers from
Applebee's  restaurants  located throughout the system.  Upon the opening of the
restaurant,  the  training  team remains for an  additional  six days to provide
support and  coaching of the new  associates.

                                       5
<PAGE>

Advertising.  We have  historically  concentrated  our advertising and marketing
efforts  primarily  on  food-specific  promotions.  We  advertise on a national,
regional and local basis, utilizing primarily television, radio and print media.
In 2003,  approximately  4.0% of sales  for  company  restaurants  was  spent on
advertising. This amount includes contributions to the national advertising pool
which  develops  and  funds  the  specific  national  promotions.  We focus  the
remainder of our  advertising  expenditures  on local  advertising in areas with
company owned restaurants.

Purchasing.  Maintaining  high food  quality and  system-wide  consistency  is a
central focus of our purchasing  program.  We mandate quality  standards for all
products  used in the  restaurants,  and we maintain a limited  list of approved
suppliers  from which we and our  franchisees  must select.  We have  negotiated
purchasing agreements with most of our approved suppliers which result in volume
discounts  for us and our  franchisees.  Additionally,  we purchase and maintain
inventories of certain specialty products to assure sufficient  supplies for the
system.  In 2001,  we began a  multi-year  supply  chain  management  initiative
designed to  leverage  our size,  improve  sourcing  of  products  and  optimize
distribution.

We are committed to providing  our  customers  with products that meet or exceed
regulatory  and industry  standards  for food safety as well as our high quality
standards.  Our quality assurance  department  establishes and monitors our food
safety  programs,  including  supplier and distributor  audits,  food safety and
sanitation monitoring and product testing.

Company Restaurants

Company  Restaurant  Openings and  Acquisitions.  Our  expansion  strategy is to
cluster  restaurants in targeted markets,  thereby increasing consumer awareness
and convenience, and enabling us to take advantage of operational,  distribution
and advertising efficiencies.  Our development experience indicates that when we
open  multiple   restaurants  within  a  particular  market,  our  market  share
increases.

In order to maximize overall system growth,  our expansion strategy through 1992
emphasized franchise  arrangements with experienced,  successful and financially
capable restaurant operators. We continue to expand the Applebee's system across
the United States  through  franchise  operations,  but  beginning in 1992,  our
growth   strategy  also  included   increasing   the  number  of  company  owned
restaurants.  We have tried to  achieve  this goal in two ways.  First,  we have
developed  strategic  territories.  Second,  when  franchises  are available for
purchase under acceptable financial terms, we have selectively acquired existing
franchise   restaurants   and  terminated  the  selling   franchisee's   related
development rights. Using this strategy,  we have opened 286 new restaurants and
acquired 113 franchise  restaurants over the last eleven years and have expanded
from a total of 31 company owned or operated restaurants as of December 27, 1992
to a total of 383 as of December 28, 2003. In addition, as part of our portfolio
management  strategy,  we have sold 35 restaurants  to  franchisees  during this
eleven-year period.

                                       6
<PAGE>

We opened 26 new company  Applebee's  restaurants in 2003 and anticipate opening
at least 28 new  company  Applebee's  restaurants  in 2004.  We may open more or
fewer restaurants  depending upon the availability of appropriate new sites. The
following table shows the areas where our company restaurants were located as of
December 28, 2003:

<TABLE>
<CAPTION>
                                                Area
               -----------------------------------------------------------------------
               <S>                                                                               <C>
               Detroit/Southern Michigan..............................................            60
               New England (includes Maine, Massachusetts, New Hampshire, New York,
                 Rhode Island and Vermont)............................................            60
               Minneapolis/St. Paul, Minnesota........................................            56
               North/Central Texas....................................................            42
               St. Louis, Missouri/Illinois...........................................            41
               Virginia...............................................................            39
               Kansas City, Missouri/Kansas...........................................            28
               Washington, D.C. (Maryland, Virginia)..................................            27
               Las Vegas/Reno, Nevada.................................................            15
               Albuquerque, New Mexico................................................             8
               San Diego/Southern California..........................................             7
                                                                                      -------------------
                                                                                                  383
                                                                                      ===================
</TABLE>
Restaurant  Operations.  The  staff  for a typical  restaurant  consists  of one
general manager, one kitchen manager, two or three managers and approximately 60
hourly employees. All managers of company owned restaurants receive a salary and
performance  bonus  based on  restaurant  sales,  profits and  adherence  to our
standards.  As of December 28, 2003, we employed 12 Regional Vice  Presidents of
Operations/Directors  of Operations and 58 Area  Directors.  The Area Directors'
duties  include  regular  restaurant  visits and  inspections  which  ensure the
ongoing maintenance of our standards of quality,  service,  cleanliness,  value,
and courtesy.  In addition to providing a significant  contribution  to revenues
and operating earnings, we use company owned restaurants for many purposes which
are integral to the development of the entire system,  including  testing of new
menu  items  and  training  of  franchise   restaurant  managers  and  operating
personnel.

The Applebee's Franchise System

Franchise  Territory  and  Restaurant  Openings.  We  currently  have  exclusive
franchise  arrangements  with 70 franchise  groups,  including 20  international
franchisees.  We  have  generally  selected  franchisees  that  are  experienced
multi-unit  restaurant  operators who have been  involved with other  restaurant
concepts.  Our franchisees operate Applebee's  restaurants in 42 states and nine
international  countries.  We have  assigned  the vast  majority of all domestic
territories  in all states  except  Hawaii or have  designated  them for company
development.

As of December 28, 2003,  there were 1,202  franchise  restaurants.  Franchisees
opened 84  restaurants  in 2001, 81  restaurants  in 2002, and 74 restaurants in
2003. We anticipate between 70 to 80 franchise restaurant openings in 2004.

Development  of  Restaurants.  We make  available  to  franchisees  the physical
specifications for a typical restaurant,  and we retain the right to prohibit or
modify the use of any plan.  Each  franchisee is  responsible  for selecting the
site for each  restaurant  within  their  territory.  We assist  franchisees  in
selecting  appropriate  sites, and any selection made by a franchisee is subject
to our  approval.  We also  conduct a physical  inspection,  review any proposed
lease or purchase agreement, and make available demographic studies.

                                       7
<PAGE>

Domestic Franchise Arrangements.  Generally, franchise arrangements consist of a
development agreement and separate franchise agreements.  Development agreements
grant the  exclusive  right to develop a number of  restaurants  in a designated
geographical area. The term of a domestic development  agreement is generally 20
years.  The  franchisee  enters  into a  separate  franchise  agreement  for the
operation of each restaurant.  Each agreement has a term of 20 years and permits
renewal for up to an additional 20 years in accordance  with the terms contained
in the then current  franchise  agreement  (including  the then current  royalty
rates and advertising fees) and upon payment of an additional franchise fee.

For each  restaurant  developed,  a franchisee is currently  obligated to pay an
initial  franchisee fee (which  typically  ranges from $30,000 to $35,000) and a
royalty  fee  equal  to 4% of the  restaurant's  monthly  gross  sales.  We have
previously executed agreements with a majority of our franchisees which maintain
the existing royalty fees of 4% and extend the current franchise and development
agreements  until  January  1,  2020.  The  revised  agreements   establish  new
restaurant  development  obligations over the next several years.  These revised
agreements contain  provisions which allow for the continued  development of the
Applebee's  concept  and  support our  long-term  expectation  of at least 2,300
restaurants  in the United States.  The terms,  royalties and  advertising  fees
under a limited  number of franchise  agreements  and the  franchise  fees under
older development agreements vary from the currently offered arrangements.

Advertising.  We currently  require domestic  franchisees to contribute 2.25% of
gross  sales to the  national  advertising  pool.  This amount is in addition to
their required spending of at least 1.5% of gross sales on local advertising and
promotional activities.  Franchisees also promote the opening of each restaurant
and we reimburse the franchisee for 50% of the out-of-pocket opening advertising
expenditures,  subject  to  certain  conditions.  The  maximum  amount  we  will
reimburse for these expenditures is $2,500. Under our franchise  agreements,  we
can increase the combined  amount of the advertising fee and the amount required
to be spent on local  advertising and promotional  activities to a maximum of 5%
of gross sales.

Training and Support. We provide ongoing advice and assistance to franchisees in
connection with the operation and management of each restaurant through training
sessions,  meetings,  seminars,  on-premises  visits,  and by  written  or other
material.  We  also  assist  franchisees  with  business  planning,   restaurant
development, technology and human resource efforts.

Operations  Quality  Control.  We  continuously   monitor  franchise  restaurant
operations,  principally through our full-time  franchise  consultants (27 as of
December 28,  2003).  We make both  scheduled  and  unannounced  inspections  of
restaurants  to  ensure  that  only  approved  products  are in use and that our
prescribed operations practices and procedures are being followed.  During 2003,
representatives  made an  average  of  approximately  two  visits to each of our
franchise restaurants during which they conducted an inspection and consultation
in the  restaurant.  We have the right to  terminate a franchise if a franchisee
does not operate and maintain a restaurant in accordance with our requirements.

Franchise  Business  Council.  We maintain a Franchise  Business  Council  which
provides us with advice about  operations,  marketing,  product  development and
other  aspects  of  restaurant  operations  for the  purpose  of  improving  the
franchise  system.  As of December  28, 2003,  the  Franchise  Business  Council
consisted of eight  franchisee  representatives  and three members of our senior
management.  Two  franchisee  representatives  are  permanent  members  and  one
franchisee  representative  must be a franchisee with five or less  restaurants.
Franchisees elect the remaining franchisee representatives annually.

International  Franchise  Arrangements.  We  continue  to  pursue  international
franchising of the Applebee's  concept under a long-term  strategy of controlled
expansion.  This  strategy  includes  seeking  qualified  franchisees  with  the
resources  to  open  multiple  restaurants  in each  territory  and  those  with
familiarity  with the specific  local  business  environment.  We are  currently
focusing  on  international  franchising  in Canada,  Mexico,  Central and South

                                       8
<PAGE>
America and the  Mediterranean/Middle  East. In this regard,  we currently  have
development agreements with 20 international  franchisees.  Franchisees operated
47  international  restaurants  as of December 28, 2003.  The success of further
international  expansion will depend on, among other things, local acceptance of
the  Applebee's  concept and our ability to attract  qualified  franchisees  and
operating personnel. We must also comply with the regulatory requirements of the
local  jurisdictions,   and  supervise   international   franchisee   operations
effectively.

Franchise  Financing.  Although  financing  is the  sole  responsibility  of the
franchisee,  we  make  available  to  franchisees  information  about  financial
institutions  interested in financing the costs of  restaurant  development  for
qualified franchisees.  None of these financial institutions is our affiliate or
agent,  and we have no control  over the terms or  conditions  of any  financing
arrangement offered by these financial institutions.

In 2003,  we  arranged  for a lease  financing  company  to  provide  capital to
qualified   franchisees   for   investments  in  certain  sales  and  technology
initiatives  over a three-year  period ending in September  2006 under  standard
leasing  terms and  conditions.  Under the terms of the  arrangement,  we do not
guarantee any portion of the financing.

In  November  2003,  we arranged  for a  financing  company to provide up to $75
million  to  qualified   franchisees  for  short-term   loans  to  fund  remodel
investments.  Under  the  terms of this  financing  program,  we will  provide a
limited  guarantee  pool for the loans  advanced  during the  three-year  period
ending December 2006. There were no loans  outstanding  under this program as of
December 28, 2003.

Competition

We expect competition in the casual dining segment of the restaurant industry to
remain intense with respect to price, service,  location,  concept, and the type
and quality of food.  There is also intense  competition  for real estate sites,
qualified  management  personnel,  and hourly  restaurant staff. Our competitors
include  national,  regional and local chains,  as well as local  owner-operated
restaurants.  We have a number of  well-established  competitors.  Some of these
companies have been in existence  longer than we have, and therefore they may be
better established in the markets where our restaurants are or may be located.

Service Marks

We own the rights to the "Applebee's  Neighborhood  Grill & Bar(R)" service mark
and certain  variations thereof and to other service marks used in our system in
the United States and in various  foreign  countries.  We are aware of names and
marks  similar to our  service  marks used by third  parties in certain  limited
geographical  areas. We intend to protect our service marks by appropriate legal
action where and when necessary.

Government Regulation

Our restaurants are subject to numerous federal, state, and local laws affecting
health,  sanitation and safety  standards.  Our  restaurants are also subject to
state and local licensing  regulation of the sale of alcoholic  beverages.  Each
restaurant  is  required  to  obtain   appropriate   licenses  from   regulatory
authorities  allowing it to sell liquor,  beer,  and wine.  We also require that
each restaurant obtain food service licenses from local health authorities.  Our
licenses  to sell  alcoholic  beverages  must  be  renewed  annually  and may be
suspended or revoked at any time for cause.  This would include violation of any
law  or  regulation  pertaining  to  alcoholic  beverage  control  by us or  our
employees.  Among such laws are those  regulating  the minimum age of patrons or
employees,  advertising,  wholesale purchasing, and inventory control. If one of
our restaurants failed to maintain its license to sell alcohol or serve food, it
would significantly harm the success of that restaurant. In order to reduce this
risk,  we operate each  restaurant in accordance  with  standardized  procedures
designed to facilitate compliance with all applicable codes and regulations.

                                       9
<PAGE>

We are subject to various federal and state environmental regulations, but these
regulations  have not had a  material  adverse  effect  on our  operations.  New
environmental requirements and regulations could delay or prevent development of
new restaurants in particular locations.

Our  employment  practices  are  governed  by  various  governmental  employment
regulations. These include minimum wage, overtime, immigration, family leave and
working condition regulations.

We are subject to a variety of federal and state laws governing  franchise sales
and the franchise  relationship.  In general,  these laws and regulations impose
certain disclosure and registration requirements prior to the sale and marketing
of franchises. Recent decisions of several state and federal courts and recently
enacted or proposed  federal and state laws demonstrate a trend toward increased
protection of the rights and interests of franchisees against franchisors.  Such
decisions  and laws may limit the  ability of  franchisors  to  enforce  certain
provisions  of  franchise   agreements  or  to  alter  or  terminate   franchise
agreements.  Due to the scope of our  business and the  complexity  of franchise
regulations,  we may encounter minor compliance  issues from time to time. We do
not  believe,  however,  that any of these  issues will have a material  adverse
effect on our business.

Under certain court  decisions and statutes,  owners of restaurants  and bars in
some  states  in which we own or  operate  restaurants  may be held  liable  for
serving  alcohol to intoxicated  customers whose  subsequent  conduct results in
injury  or death  to a third  party.  We  cannot  guarantee  that we will not be
subject to such liability. We do believe,  however, that our insurance presently
provides adequate coverage for such liability.

Employees

As of December 28, 2003,  we employed  approximately  26,900 full and  part-time
employees.  Of those,  approximately  520 were corporate  personnel,  1,630 were
restaurant  managers  or  managers  in  training  and 24,750  were  employed  in
non-management  full and part-time  restaurant  positions.  Of the 520 corporate
employees,  approximately 180 were in management  positions and 340 were general
office employees, including part-time employees.

We consider  our  employee  relations  to be good.  Most  employees,  other than
restaurant  management and corporate personnel,  are paid on an hourly basis. We
believe that we provide working conditions and wages that compare favorably with
those of our competition. We have never experienced a work stoppage due to labor
difficulty,  and  our  employees  are not  covered  by a  collective  bargaining
agreement.

                                       10
<PAGE>

Executive and Other Senior Officers of the Registrant

Our executive and other senior officers as of December 28, 2003 are shown below.
<TABLE>
<CAPTION>

                 Name                Age                                       Position
    ------------------------------- -----   -------------------------------------------------------------------------------
   <S>                                <C>  <C>
    Lloyd L. Hill....................  59   Chairman  of the  Board of  Directors,  Chief  Executive  Officer  and
                                               President
    Steven K. Lumpkin................  49   Executive Vice President, Chief Financial Officer and Treasurer (Member of the
                                               Board  of Directors effective January 2004)
    David L. Goebel..................  53   Executive Vice President of Operations (Chief Operating Officer effective
                                               January 2004)
    Louis A. Kaucic..................  52   Executive Vice President and Chief People Officer
    John C. Cywinski.................  41   Senior Vice  President (Executive  Vice President  effective  January  2004)
                                               and Chief Marketing Officer
    Larry A. Cates...................  55   President of International Division
    Philip R. Crimmins...............  52   Senior Vice President of Development
    Kurt Hankins.....................  43   Senior Vice President of Menu Development and Innovation
    David R. Parsley.................  57   Senior Vice President of Supply Chain Management
    Carin L. Stutz...................  47   Senior Vice President of Company Operations
    Beverly O. Elving................  50   Vice President of Accounting
    Janell E. Jones..................  42   Vice President of Performance Systems
    Robert T. Steinkamp..............  58   Vice President, Secretary and General Counsel
</TABLE>

Lloyd L. Hill was elected a director  in August  1989.  Mr.  Hill was  appointed
Executive  Vice  President  and Chief  Operating  Officer  in January  1994.  In
December 1994, he assumed the role of President in addition to his role as Chief
Operating  Officer.  Effective  January 1, 1997,  Mr.  Hill  assumed the role of
Co-Chief Executive Officer. In January 1998, he assumed the full duties of Chief
Executive  Officer.  In May 2000, Mr. Hill was elected  Chairman of the Board of
Directors.  Prior to joining  Applebee's,  he served as  President  of  Kimberly
Quality  Care,  a home health care and nurse  personnel  staffing  company  from
December 1989 to December 1993,  where he also served as a director from 1988 to
1993, having joined that organization in 1980.

Steven K. Lumpkin was employed by  Applebee's  in May 1995 as Vice  President of
Administration.  In January  1996,  he was promoted to Senior Vice  President of
Administration.  In  November  1997,  he assumed  the  position  of Senior  Vice
President of Strategic Development and in January 1998 was promoted to Executive
Vice President of Strategic Development.  He was named Chief Development Officer
in March  2001.  In March  2002,  Mr.  Lumpkin  assumed  the  position  of Chief
Financial Officer and Treasurer.  In January 2004, he was appointed to the Board
of  Directors.  Prior to  joining  Applebee's,  Mr.  Lumpkin  was a Senior  Vice
President of a division of the Olsten  Corporation,  Kimberly Quality Care, from
July 1993 until January 1995. From June 1990 until July 1993, Mr. Lumpkin was an
Executive  Vice  President  and a member of the board of  directors  of Kimberly
Quality  Care.  From January 1978 until June 1990,  Mr.  Lumpkin was employed by
Price  Waterhouse  LLP, where he served as a management  consulting  partner and
certified public accountant.

David L. Goebel was  employed  by  Applebee's  in  February  2001 as Senior Vice
President of Franchise  Operations and was promoted to the position of Executive
Vice  President of Operations in December  2002. In January 2004, Mr. Goebel was
promoted to Chief Operating  Officer.  Prior to joining  Applebee's,  Mr. Goebel
headed a management  company that provided  consulting  and  strategic  planning
services to various  businesses from April 1998 to February 2001. Prior to 1998,
he was a franchise  principal with an early developer group of the Boston Market
concept.  Mr.  Goebel's  business  experience  also  includes  positions as Vice
President of Business Development for Rent-a-Center (a subsidiary of Thorn, EMI)
and Vice President of Operations for Ground Round restaurants.

                                       11
<PAGE>

Louis A.  Kaucic was  employed  by  Applebee's  in October  1997 as Senior  Vice
President of Human  Resources.  He was named Chief People  Officer in March 2001
and Executive Vice  President in March 2003.  Prior to joining  Applebee's,  Mr.
Kaucic was Vice  President of Human  Resources and later promoted to Senior Vice
President  of Human  Resources  with  Unique  Casual  Restaurants,  Inc.,  which
operated several  restaurant  concepts,  from July 1992 until October 1997. From
1982 to 1992,  he was  employed by Pizza Hut,  Inc.  in a variety of  positions,
including  Director of Employee  Relations.  From 1978 to 1982,  Mr.  Kaucic was
employed by Kellogg's as an Industrial Relations Manager.

John C.  Cywinski  was  employed  by  Applebee's  in July  2001 as  Senior  Vice
President  and Chief  Marketing  Officer and he was promoted to  Executive  Vice
President  in  January  2004.  Prior to joining  Applebee's,  Mr.  Cywinski  was
employed as Vice  President of Brand Strategy for  McDonald's  Corporation  from
April 1999 to July 2001.  From October 1996 to April 1999,  he was  President of
Buena Vista Pictures  Marketing,  the motion picture division of The Walt Disney
Company.  Prior to The Walt Disney  Company,  Mr. Cywinski was Vice President of
U.S.  Marketing for Burger King Corporation,  where he held various positions of
increasing  responsibility from 1989 to 1996. He started his career with the Leo
Burnett Advertising Agency in 1984.

Larry A.  Cates was  employed  by  Applebee's  in May 1997 as  President  of the
International  Division.  Prior to joining Applebee's,  Mr. Cates spent 17 years
with PepsiCo  Restaurants  developing  international  markets for that company's
Pizza  Hut,  Taco Bell and KFC  brands.  From 1994 to 1997,  Mr.  Cates was Vice
President of Franchising and Development - Europe/Middle  East, and from 1990 to
1994,  he was Chief  Executive  Officer of Pizza Hut UK, Ltd.,  a joint  venture
between PepsiCo Restaurants and Whitbread.

Philip R. Crimmins was employed by  Applebee's in August 2002 as Vice  President
of Operations Excellence. In September 2003, Mr. Crimmins was promoted to Senior
Vice President of Development.  Prior to joining Applebee's,  he was employed by
Pizza  Hut,  Inc.  for 27 years,  most  recently  as Vice  President  of Service
Strategies.  While at Pizza Hut, Inc., Mr. Crimmins held several other positions
of increasing responsibility,  including senior leadership positions in research
and development, concept development, customer satisfaction, field training, and
restaurant operations.

Kurt  Hankins was  employed by  Applebee's  in August 2001 as Vice  President of
Research and  Development.  In December 2003, Mr. Hankins was promoted to Senior
Vice President of Menu Development and Innovation.  Prior to joining Applebee's,
he served as Vice  President of Food and Beverage for Darden  Restaurants,  Inc.
from July 1999  through July 2001.  From August 1994 to July 1999,  he served as
Director of Food Research and Development for Darden Restaurants,  Inc. Prior to
his employment with Darden Restaurants,  Inc., he held various positions in food
and beverage research and development within the restaurant industry.

David R.  Parsley  was  employed  by  Applebee's  in April  2000 as Senior  Vice
President of Purchasing and Distribution. In January 2003, Mr. Parsley was named
Senior Vice President of Supply Chain Management.  Prior to joining  Applebee's,
Mr. Parsley held several positions with Prandium,  Inc.,  operator of El Torito,
Chi-Chi's and Koo Koo Roo,  from  November 1996 to April 2000,  most recently as
Senior Vice President of Quality and Supply Chain  Management.  He has also held
purchasing   positions  with  The  Panda   Management   Company,   Carl  Karcher
Enterprises, Proficient Food Company, Inc., and Baxter Healthcare Corporation.

Carin L. Stutz was  employed  by  Applebee's  in  November  1999 as Senior  Vice
President  of Company  Operations.  Prior to joining  Applebee's,  Ms. Stutz was
Division Vice  President with Wendy's  International  from July 1994 to November
1999. From 1993 to 1994, she was Regional Operations Vice President for Sodexho,
USA.  From 1990 to 1993,  Ms. Stutz was employed by  Nutri/System,  Inc. as Vice
President of Corporate Operations.  Prior to 1990, Ms. Stutz was employed for 12
years with Wendy's International.

                                       12
<PAGE>

Beverly  O.  Elving was  employed  by  Applebee's  in June 1998 as  Director  of
Corporate  Accounting.  In  September  2002,  Ms.  Elving was  promoted  to Vice
President of Accounting.  Prior to joining  Applebee's,  she was Chief Financial
Officer from 1996 to 1998 for  Integrated  Medical  Resources,  a  publicly-held
management  services company.  From 1990 to 1996, Ms. Elving was employed by the
Federal Deposit  Insurance  Corporation as Director of Financial  Operations and
was later promoted to Vice President of Financial  Operations & Accounting.  Ms.
Elving,  a certified public  accountant,  was also employed by Arthur Andersen &
Co.

Janell E. Jones was employed by Applebee's in February 2000 as Vice President of
Performance Systems. Prior to joining Applebee's,  Ms. Jones was Regional Market
Leader  of the Hay  Group,  a  nationally  recognized  independent  compensation
consulting  firm.  From 1993 to 1998,  she was a Regional  Director with the Hay
Group.  Ms.  Jones  has also  held  several  management  positions  relating  to
compensation  and employee  benefits  with several  other  companies.  Ms. Jones
resigned from Applebee's effective December 31, 2003.

Robert T.  Steinkamp  was  employed  by  Applebee's  in January  1990 as General
Counsel.  In March 1991, he was promoted to Vice President and General  Counsel.
Prior to  joining  Applebee's, Mr. Steinkamp  was a  partner  in the law firm of
Beckett & Steinkamp. Mr. Steinkamp resigned from Applebee's effective January 5,
2004.

Item 2.  Properties

As of December 28, 2003,  we owned and operated 383  restaurants.  Of these,  we
leased the land and  building  for 63 sites,  owned the  building and leased the
land for 165 sites,  and owned the land and building for 155 sites. In addition,
as of December 28, 2003, we owned 6 sites for future  development of restaurants
and had entered into 18 lease  agreements for  restaurant  sites we plan to open
during 2004. Our leases  generally have an initial term of 15 to 20 years,  with
renewal terms of 5 to 20 years,  and provide for a fixed rental plus, in certain
instances, percentage rentals based on gross sales.

We own an 80,000  square foot  office  building  and lease a 23,000  square foot
office  building  in  Overland  Park,   Kansas,   located  in  the  Kansas  City
metropolitan  area, in which our corporate  offices are  headquartered.  We also
lease office space in certain regions in which we operate restaurants.

Under our  franchise  agreements,  we have  certain  rights to gain control of a
restaurant  site in the  event of  default  under  the  lease  or the  franchise
agreement.

                                       13
<PAGE>

The  following  table  sets  forth  the 49  states  and the  nine  international
countries  in  which  Applebee's  are  located  and the  number  of  restaurants
operating in each state or country as of December 28, 2003:
<TABLE>
<CAPTION>

                                                                 Number of Restaurants
                                                  -----------------------------------------------------
                    State or Country                 Company            Franchise         Total System
            ----------------------------------    --------------      -------------      --------------
            <S>                                            <C>              <C>                 <C>

            Domestic:
            Alabama........................                  --                 28                  28
            Alaska.........................                  --                  2                   2
            Arizona........................                  --                 25                  25
            Arkansas.......................                  --                  7                   7
            California.....................                   8                 78                  86
            Colorado.......................                  --                 30                  30
            Connecticut....................                  --                 10                  10
            Delaware.......................                   2                  5                   7
            Florida........................                  --                 89                  89
            Georgia........................                  --                 67                  67
            Idaho..........................                  --                  9                   9
            Illinois.......................                  10                 46                  56
            Indiana........................                   3                 56                  59
            Iowa...........................                  --                 23                  23
            Kansas.........................                  13                 17                  30
            Kentucky.......................                   4                 28                  32
            Louisiana......................                  --                 17                  17
            Maine..........................                   7                 --                   7
            Maryland.......................                   9                 11                  20
            Massachusetts..................                  30                 --                  30
            Michigan.......................                  60                 14                  74
            Minnesota......................                  52                  2                  54
            Mississippi....................                  --                 14                  14
            Missouri.......................                  39                  9                  48
            Montana........................                  --                  7                   7
            Nebraska.......................                  --                 17                  17
            Nevada.........................                  14                 --                  14
            New Hampshire..................                  12                 --                  12
            New Jersey.....................                  --                 34                  34
            New Mexico.....................                   8                  6                  14
            New York.......................                   1                 82                  83
            North Carolina.................                   1                 49                  50
            North Dakota...................                  --                  9                   9
            Ohio...........................                  --                 80                  80
            Oklahoma.......................                  --                 15                  15
            Oregon.........................                  --                 15                  15
            Pennsylvania...................                   1                 49                  50
            Rhode Island...................                   7                 --                   7
            South Carolina.................                  --                 42                  42
            South Dakota...................                  --                  4                   4
            Tennessee......................                  --                 46                  46
            Texas..........................                  42                 30                  72
            Utah...........................                  --                 12                  12
            Vermont........................                   3                 --                   3
            Virginia.......................                  52                 --                  52
            Washington.....................                  --                 21                  21
            West Virginia..................                   1                 12                  13
            Wisconsin......................                   4                 34                  38
            Wyoming........................                  --                  4                   4
                                                  --------------      -------------      --------------
            Total Domestic.................                 383              1,155               1,538
                                                  --------------      -------------      --------------

</TABLE>
                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                                  Number of Restaurants
                                                  -----------------------------------------------------
                     State or Country                Company            Franchise         Total System
            ----------------------------------    --------------      --------------     --------------
            <S>                                            <C>              <C>                 <C>

            International:
            Bahrain........................                  --                  1                   1
            Canada.........................                  --                 17                  17
            Egypt..........................                  --                  1                   1
            Greece.........................                  --                  5                   5
            Honduras.......................                  --                  2                   2
            Kuwait.........................                  --                  2                   2
            Mexico.........................                  --                 17                  17
            Qatar..........................                  --                  1                   1
            Saudi Arabia...................                  --                  1                   1
                                                  --------------      --------------     --------------
            Total International............                  --                 47                  47
                                                  --------------      --------------     --------------
                                                            383              1,202               1,585
                                                  ==============      ==============     ==============
</TABLE>

Item 3.  Legal Proceedings

We are involved in various  legal  actions which  include,  without  limitation,
employment law related  matters,  dram shop claims,  personal  injury claims and
other such normal restaurant  operational matters. In each instance,  we believe
that we have meritorious  defenses to the allegations made and we are vigorously
defending these claims.

While the  resolution of the matters  described  above may have an impact on our
financial results for the period in which they are resolved, we believe that the
ultimate  disposition  of  these  matters  will  not,  individually  or  in  the
aggregate,  have a material  adverse  effect upon our  business or  consolidated
financial statements.

Item 4.  Submission of Matters to a Vote of Security Holders

Not applicable.

                                       15
<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

1.  Our common stock trades on The Nasdaq Stock Market(R) under the symbol APPB.

    The table below sets forth for the fiscal  quarters  indicated  the reported
    high and low sale  prices of our common  stock,  as  reported  on The Nasdaq
    Stock Market.
<TABLE>
<CAPTION>

                                                       2003                              2002
                                          -------------------------------   -------------------------------
                                               High            Low               High            Low
                                          --------------- ---------------   --------------- ---------------
                <S>                        <C>             <C>               <C>             <C>
                First Quarter               $     28.30     $     23.09       $     25.41     $     21.20
                Second Quarter              $     31.75     $     26.75       $     27.67     $     22.26
                Third Quarter               $     33.47     $     29.74       $     23.50     $     19.13
                Fourth Quarter              $     40.19     $     30.80       $     26.35     $     19.03
</TABLE>

2.  Number of stockholders of record at December 28, 2003: 1,349

3.  We declared an annual  dividend  of $0.07 per common  share on December  11,
    2003 for  stockholders  of record on December 26, 2003, and the dividend was
    paid on January 23, 2004. We declared an annual dividend of $0.06 per common
    share on December 12, 2002 for  stockholders of record on December 27, 2002,
    and the dividend was paid on January 30, 2003.

    We presently anticipate  continuing the payment of cash dividends based upon
    our annual net income.  The actual amount of such dividends will depend upon
    future earnings, results of operations,  capital requirements, our financial
    condition  and certain  other  factors.  There can be no assurance as to the
    amount of net  income  that we will  generate  in 2004 or future  years and,
    accordingly,  there  can be no  assurance  as to the  amount  that  will  be
    available for the declaration of dividends, if any.

4.  For  information  on our  equity  compensation  plans,  refer  to  Item  12,
    "Security Ownership of Certain Beneficial Owners and Management."

                                       16

<PAGE>


Item 6.       Selected Financial Data

The  following  table sets forth for the  periods  and the dates  indicated  our
selected  financial  data.  The fiscal year ended December 31, 2000 contained 53
weeks, and all other periods presented  contained 52 weeks. The following should
be read in  conjunction  with the  Consolidated  Financial  Statements and Notes
thereto and  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations" appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>


                                                                          Fiscal Year Ended
                                           -------------------------------------------------------------------------------
                                             December 28,    December 29,    December 30,    December 31,    December 26,
                                                 2003            2002            2001            2000            1999
                                           --------------- --------------- --------------- --------------- ---------------
                                                               (in thousands, except per share amounts)
<S>                                          <C>             <C>             <C>             <C>               <C>
STATEMENT OF EARNINGS DATA:
Company restaurant sales.................     $  867,158      $  724,616      $  651,119      $  605,414      $  596,754
Franchise royalties and fees.............        109,833         102,180          93,225          84,738          72,830
Other franchise income...................         13,147           2,688             --              --              --
                                           --------------- --------------- --------------- --------------- ---------------
    Total operating revenues.............     $  990,138      $  829,484      $  744,344      $  690,152      $  669,584
                                           =============== =============== =============== =============== ===============
Operating earnings.......................     $  153,647      $  129,708      $  112,427      $  107,207      $   94,910
Net earnings.............................     $   93,558      $   83,027      $   64,401      $   63,161      $   54,198
Basic net earnings per share.............     $     1.69      $     1.49      $     1.16      $     1.07      $     0.85
Diluted net earnings per share...........     $     1.64      $     1.46      $     1.13      $     1.07      $     0.84
Dividends declared per share.............     $     0.07      $     0.06      $     0.05      $     0.05      $     0.04
Basic weighted average shares
    outstanding..........................         55,296          55,605          55,512          58,841          63,908
Diluted weighted average shares
    outstanding..........................         56,939          56,922          56,877          59,170          64,353

BALANCE SHEET DATA
    (AT END OF FISCAL YEAR):
Total assets.............................     $  644,001      $  566,114      $  500,411      $  471,707      $  442,216
Long-term debt, including
  current portion........................     $   20,862      $   52,563      $   74,568      $   91,355      $  108,100
Stockholders' equity.....................     $  459,732      $  392,581      $  325,183      $  281,718      $  253,873

</TABLE>
                                       17

<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

Our results  for 2003 were driven by the  execution  of  integrated  strategies,
including improved food, promotions backed by effective advertising, meeting our
guests' desires for more convenience, our focus on operations excellence and the
retention of better people.

We  completed  the  rollout  of our  Carside To Go(TM)  program  in all  company
restaurants in November 2003 where practicable and our franchisees will continue
implementation  during  2004.  We expect  Carside To Go(TM) to be a  significant
driver of sales and traffic growth in 2004.

Our revenues are generated from three primary sources:

o        Company restaurant sales (food and beverage sales)
o        Franchise royalties and fees
o        Other franchise income

Beverage  sales  consist of sales of alcoholic  beverages,  while  non-alcoholic
beverages  are included in food sales.  Franchise  royalties are generally 4% of
each franchise  restaurant's monthly gross sales. Franchise fees typically range
from  $30,000 to $35,000 for each  restaurant  opened.  Other  franchise  income
includes  insurance  premiums  from  franchisee  participation  in  our  captive
insurance company and revenue from information  technology products and services
provided to certain franchisees.

Comparable  restaurant sales are based upon those  restaurants open for at least
18 months and are compared from period to period.

Certain expenses relate only to company operated restaurants. These include:

o        Food and beverage costs
o        Labor costs
o        Direct and occupancy costs
o        Pre-opening expenses

Cost of  other  franchise  income  includes  the  costs  related  to  franchisee
participation in our captive  insurance company and costs related to information
technology products and services provided to certain franchisees.

Other expenses,  such as general and administrative  and amortization  expenses,
relate to both company operated restaurants and franchise operations.

We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal years ended  December  28,  2003,  December 29, 2002 and December 30,
2001 each  contained 52 weeks and are  referred to  hereafter as 2003,  2002 and
2001, respectively.

On  September  20,  2002,  we formed  Neighborhood  Insurance,  Inc.,  a Vermont
corporation  and a  wholly-owned  subsidiary,  as a captive  insurance  company.
Neighborhood   Insurance,   Inc.   was   established   to   provide   Applebee's
International,  Inc. and qualified  franchisees  with workers'  compensation and
general  liability  insurance.   Applebee's  International,   Inc.  and  covered

                                       18
<PAGE>

franchisees  make premium payments to the captive  insurance  company which pays
administrative  fees and insurance  claims,  subject to individual and aggregate
maximum claim limits under the captive insurance company's reinsurance policies.
Franchisee   premium  amounts  billed  by  the  captive  insurance  company  are
established based upon third-party  actuarial  estimates of ultimate  settlement
costs for incurred claims and administrative  fees. The franchisee  premiums are
included in other  franchise  income  ratably over the policy year.  The related
offsetting expenses are included in cost of other franchise income. Accordingly,
we do not expect  franchisee  participation in the captive  insurance company to
have a material impact on our net earnings.

As of December  28,  2003 we have  included in our  consolidated  balance  sheet
approximately  $10,000,000 of assets restricted for the payment of claims,  held
primarily in cash equivalent  investments, and approximately $1,000,000 of other
restricted  assets.  In  addition,  we  have  recorded  current  liabilities  of
approximately  $11,000,000 in loss and premium  reserves  related to the captive
insurance subsidiary.

Application of Critical Accounting Policies

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  is based  upon our  consolidated  financial  statements,  which were
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America.  These  principles  require us to make  estimates and
assumptions  that  affect the  reported  amounts in the  consolidated  financial
statements  and notes thereto.  Actual results may differ from these  estimates,
and such differences may be material to our consolidated  financial  statements.
We believe that the following  significant  accounting policies involve a higher
degree of judgment or complexity.

Franchise revenues: Franchise revenues consist of franchise royalties, franchise
fees and other franchise income. We recognize  royalties on a franchisee's sales
in the period in which the sales are reported to have occurred.  We also receive
a franchise fee for each restaurant that a franchisee  opens. The recognition of
franchise  fees is deferred  until we have  performed  substantially  all of our
related  obligations as franchisor,  typically when the restaurant opens.  Other
franchise income includes  insurance  premiums from franchisee  participation in
our captive insurance company and revenue from information  technology  products
and services provided to certain franchisees. Income from franchise premiums and
information  technology services is recognized ratably over the related contract
period.  Income from  information  technology  products is  recognized  when the
products are installed at the restaurant.

Property  and   equipment:   Property  and  equipment  are   depreciated   on  a
straight-line  basis over the estimated  useful lives of the assets.  The useful
lives of the assets are based upon  management's  expectations.  We periodically
review the assets for changes in  circumstances  which may impact  their  useful
lives.

Impairment of long-lived  assets: We periodically  review property and equipment
for impairment on a restaurant by restaurant  basis using  historical cash flows
as well as current  estimates  of future  cash  flows  and/or  appraisals.  This
assessment  process  requires the use of  estimates  and  assumptions  which are
subject to a significant degree of judgment. In addition, we periodically assess
the recoverability of goodwill and other intangible assets, which requires us to
make assumptions  regarding the future cash flows and other factors to determine
the fair value of the assets. If these assumptions  change in the future, we may
be required to record impairment charges for these assets.

Legal and  insurance  reserves:  We are  periodically  involved in various legal
actions.  We are required to assess the probability of any adverse  judgments as
well as the potential range of loss. We determine the required  accruals after a
review of the facts of each legal action.

We use estimates in the determination of the appropriate liabilities for general
liability,  workers' compensation and health insurance.  The estimated liability
is  established  based upon  historical  claims data and  third-party  actuarial
estimates of  settlement  costs for incurred  claims.  Unanticipated  changes in
these factors may require us to revise our estimates.

                                       19
<PAGE>

Employee  incentive  compensation  plans:  We have  various  long-term  employee
incentive compensation plans which require us to make estimates to determine our
liability  based  upon  projected   performance  of  plan  criteria.  If  actual
performance  against the criteria  differs from our estimates in the future,  we
will be required to adjust our liability accordingly.

Receivables:   We  continually   assess  the  collectibility  of  our  franchise
receivables.  We establish our allowance for bad debts based on several factors,
including historical collection experience, the current economic environment and
other  specific  information  available to us at the time. The allowance for bad
debts may change in the future  due to  changes  in the  factors  above or other
developments.

We periodically reassess our assumptions and judgments and make adjustments when
significant  facts  and  circumstances  dictate.  A change  in any of the  above
estimates could impact our  consolidated  statements of earnings and the related
asset or liability recorded in the consolidated balance sheets would be adjusted
accordingly.  Historically,  actual results have not been  materially  different
than the estimates that are described above.

Acquisitions

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.

On March 24,  2003,  we  acquired  the  operations  and assets of 11  Applebee's
restaurants located in Illinois,  Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee. The total cash payment
included $20,800,000 paid at closing,  approximately  $200,000 paid as a deposit
in fiscal 2002 and  approximately  $800,000 paid in the second  quarter of 2003.
Our financial statements reflect the results of operations for these restaurants
subsequent to the date of acquisition.

The  following  table is comprised of actual  company  restaurant  sales for the
restaurants acquired included in our consolidated  financial statements for each
period   presented  and  pro  forma  company   restaurant   sales  assuming  the
acquisitions occurred at the beginning of each respective period (in thousands):
<TABLE>
<CAPTION>

                                                            2003            2002            2001
                                                       --------------- --------------- ---------------
<S>                                                      <C>             <C>             <C>
Actual company restaurant sales
    for acquired restaurants.........................     $  66,300       $   6,300       $      --
                                                       =============== =============== ===============

Pro forma company restaurant sales
    for acquired restaurants.........................     $  72,400       $  68,400       $  63,800
                                                       =============== =============== ===============
</TABLE>

Disposition

On July 20, 2003,  we completed  the sale of eight  company  restaurants  in the
Atlanta, Georgia market to an affiliate of an existing franchisee for $8,000,000
and recognized an immaterial gain in our consolidated statements of earnings. In
connection with the sale of these  restaurants,  we closed one restaurant in the
Atlanta market in June 2003. This transaction did not have a significant  impact
on our net earnings for fiscal 2003. Actual company restaurant sales included in
our   consolidated   financial   statements  for  the  nine   restaurants   were
approximately $10,300,000,  $18,300,000 and $18,900,000 for 2003, 2002 and 2001,
respectively.


                                       20
<PAGE>

Results of Operations

The  following  table  contains   information   derived  from  our  consolidated
statements of earnings  expressed as a percentage of total  operating  revenues,
except where otherwise noted. Percentages may not add due to rounding.
<TABLE>
<CAPTION>

                                                                           Fiscal Year Ended
                                                            -----------------------------------------------
                                                              December 28,    December 29,    December 30,
                                                                  2003            2002             2001
                                                            --------------- --------------- ---------------
  <S>                                                       <C>             <C>             <C>
    Revenues:
         Company restaurant sales.........................           87.6%           87.4%            87.5%
         Franchise royalties and fees.....................           11.1            12.3             12.5
         Other franchise income...........................            1.3             0.3               --
                                                            --------------- --------------- ---------------
              Total operating revenues....................          100.0%          100.0%           100.0%
                                                            =============== =============== ===============
    Cost of sales (as a percentage of company restaurant
         sales):
         Food and beverage................................           26.0%           26.6%            27.0%
         Labor............................................           32.7            32.9             32.1
         Direct and occupancy.............................           25.0            25.1             25.3
         Pre-opening expense..............................            0.2             0.3              0.3
                                                            --------------- --------------- ---------------
              Total cost of sales.........................           83.9%           84.8%            84.7%
                                                            =============== =============== ===============

    Cost of other franchise income (as a percentage of
         other franchise income)..........................           96.6%           80.8%              --
    General and administrative expenses...................            9.6             9.8              9.8%
    Amortization of intangible assets.....................             --              --              0.8
    Loss on disposition of restaurants and equipment......            0.1             0.1              0.2
                                                            --------------- --------------- ---------------
    Operating earnings....................................           15.5            15.6             15.1
                                                            --------------- --------------- ---------------
    Other income (expense):
         Investment income................................            0.2             0.2              0.2
         Interest expense.................................           (0.2)           (0.3)            (1.0)
         Impairment of Chevys note receivable.............           (0.9)             --               --
         Other income (expense)...........................            0.2             0.1             (0.6)
                                                            --------------- --------------- ---------------
              Total other income (expense)................           (0.8)            0.1             (1.4)
                                                            --------------- --------------- ---------------
    Earnings before income taxes..........................           14.8            15.7             13.7
    Income taxes..........................................            5.3             5.7              5.0
                                                            --------------- --------------- ---------------
    Net earnings..........................................            9.4%           10.0%             8.7%
                                                            =============== =============== ===============

<FN>

(1) As a result of the adoption of Statement of Financial  Accounting  Standards
No. 145,  "Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of FASB
Statement No. 13, and Technical  Corrections," the  extraordinary  loss from the
extinguishment  of debt and the  related tax benefit  previously  recognized  in
fiscal 2001 have been reclassified to other expense.
</FN>
</TABLE>



                                       21

<PAGE>

Fiscal Year Ended December 28, 2003 Compared With Fiscal Year Ended December 29,
2002
--------------------------------------------------------------------------------

Company Restaurant Sales. Total company restaurant sales increased  $142,542,000
(20%) from  $724,616,000  in 2002 to $867,158,000  in 2003.  Company  restaurant
openings and weighted average weekly sales contributed  approximately 9% and 5%,
respectively,  of the increase in total company  restaurant  sales in 2003.  The
acquisition of 21 franchise  restaurants in the Washington D.C. area in November
2002 and 11 restaurants  in Illinois,  Indiana,  Kentucky,  and Missouri in late
March 2003 contributed  approximately  8% of the increase in company  restaurant
sales. These increases were partially offset by the sale of 8 restaurants in the
Atlanta, Georgia market in July 2003.

Comparable  restaurant sales at company  restaurants  increased by 5.2% in 2003.
Weighted average weekly sales at company restaurants increased 4.6% from $43,019
in 2002 to $45,000 in 2003.  These  increases were due primarily to increases in
guest traffic and in the average guest check resulting from our food promotions.
In addition,  a portion of the increase resulted from the  implementation of our
To Go initiative and menu price increases of approximately  1.5% in fiscal 2003.
In November  2003,  we  completed  the  implementation  of our Carside To Go(TM)
program in all company restaurants where practicable.  To Go sales mix increased
from 5.0% of  company  restaurant  sales in 2002 to 7.1% of  company  restaurant
sales in 2003.

Franchise Royalties and Fees.  Franchise royalties and fees increased $7,653,000
(7%) from  $102,180,000  in 2002 to  $109,833,000  in 2003 due  primarily to the
increased number of franchise  restaurants  operating during 2003 as compared to
2002 and increases in comparable restaurant sales. Weighted average weekly sales
and franchise comparable restaurant sales increased 3.3% and 3.7%, respectively,
in 2003.

Other Franchise Income. Other franchise income increased from $2,688,000 in 2002
to  $13,147,000  in 2003 due primarily to an increase of $10,200,000 in revenues
recognized  related  to the  franchise  premium  amounts  billed by the  captive
insurance company, which was formed in September  2002.  Franchise  premiums are
recognized in other franchise income ratably over the policy year.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 26.6%
in 2002 to 26.0% in 2003.  This  decrease  was due to menu price  increases  and
operational improvements resulting from our supply chain management initiatives.

Labor costs decreased from 32.9% in 2002 to 32.7% in 2003. This decrease was due
to lower hourly costs due to higher sales volume at company  restaurants and was
partially  offset by higher  costs  related to the  addition of  dedicated To Go
hourly  labor at most of our  restaurants  during  the  second  half of 2003 and
higher workers' compensation costs.

Direct and  occupancy  costs  decreased  from 25.1% in 2002 to 25.0% in 2003 due
primarily to lower rent expense and  depreciation  expense,  as a percentage  of
sales,  and was partially  offset by higher insurance costs and higher packaging
costs relating to our To Go initiative.

Cost of Other Franchise  Income.  Cost of other franchise  income increased from
$2,173,000 in 2002 to  $12,697,000 in 2003 due primarily to an increase in costs
of $10,260,000 related to the operation of our captive insurance company,  which
was formed in September 2002.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased  from  9.8% in 2002 to 9.6% in 2003 as a result of the  absorption  of
general and  administrative  expenses over a larger revenue base.  This decrease
was  partially  offset  by  higher  depreciation  expense  related  to  our  new
information systems and increased incentive compensation.

                                       22
<PAGE>

Impairment of Chevys Note Receivable. In June 2003, Chevys announced the sale of
the majority of its  restaurants.  Subsequent to the  announcement,  we received
Chevys'  audited  financial  statements  for the fiscal year ended  December 31,
2002.  During the fiscal  quarter  ended June 29,  2003,  we fully  impaired the
principal and accrued  interest of  approximately  $8,800,000.  In October 2003,
Chevys Inc.  filed a voluntary  petition to  reorganize  under Chapter 11 of the
U.S. Bankruptcy Code.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income taxes,  decreased  from 36.2% in 2002 to 36.0% in 2003 due to a reduction
in state and local income taxes.

Fiscal Year Ended December 29, 2002 Compared With Fiscal Year Ended December 30,
2001
--------------------------------------------------------------------------------

Company Restaurant Sales.  Total company restaurant sales increased  $73,497,000
(11%) from  $651,119,000  in 2001 to $724,616,000  in 2002.  Company  restaurant
openings  contributed  approximately  9% to the 11%  increase  in total  company
restaurant  sales.  The  remaining  increase  was due to the  acquisition  of 21
franchise  restaurants  in the  Washington,  D.C.  area  in  November  2002  and
increases in weighted average weekly sales.

Comparable  restaurant sales at company  restaurants  increased by 1.8% in 2002.
Weighted average weekly sales at company restaurants increased 0.8% from $42,660
in 2001 to $43,019 in 2002.  These  increases were due primarily to increases in
guest traffic and in the average guest check resulting from our food promotions.
In addition,  a portion of the increase resulted from the  implementation of our
To Go initiative and menu price increases of  approximately  1.0% in 2002. To Go
sales mix increased from approximately 4% of company restaurant sales in 2001 to
5% of company restaurant sales in 2002.

Franchise Royalties and Fees.  Franchise royalties and fees increased $8,955,000
(10%) from  $93,225,000 in 2001 to $102,180,000 in 2002. The increased number of
franchise  restaurants  operating  during 2002 as  compared to 2001  contributed
approximately  7% to the 10% total  increase in franchise  income.  In addition,
comparable  restaurant  sales and weighted  average  weekly sales for  franchise
restaurants increased 3.6% and 3.7%, respectively, in 2002.

Other  Franchise  Income.  Other  franchise  income was  $2,688,000  in 2002 due
primarily to revenues recognized related to the franchise premium amounts billed
by the captive insurance company,  which was formed in September 2002. Franchise
premiums are recognized in other franchise income ratably over the policy year.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 27.0%
in 2001 to 26.6% in 2002.  This  decrease was due  primarily to lower  commodity
costs and operational  improvements  resulting from our supply chain  management
initiatives implemented in 2001.

Labor costs increased from 32.1% in 2001 to 32.9% in 2002. This increase was due
to  increased  hourly wage rates and higher  management  salaries due to our new
employee retention program and increased incentive compensation.

Direct and  occupancy  costs  decreased  from 25.3% in 2001 to 25.1% in 2002 due
primarily to lower  utility  costs and  advertising  costs,  as a percentage  of
sales.  These decreases were partially offset by higher packaging costs relating
to our To Go initiative.

Cost of Other Franchise Income. Cost of other franchise income was $2,173,000 in
2002  due  primarily  to the  costs  related  to the  operation  of our  captive
insurance company, which was formed in September 2002.

                                       23
<PAGE>

General and Administrative  Expenses.  General and administrative  expenses were
9.8% in both 2001 and 2002. General and administrative expenses were impacted by
higher  incentive  compensation  and higher legal fees in 2002.  These increases
were offset by the costs incurred in 2001 associated with our purchasing  supply
chain and strategic brand assessment  projects and the absorption of general and
administrative expenses over a larger revenue base in 2002.

Amortization of Intangible  Assets.  Amortization of intangible assets decreased
from  $5,851,000  in 2001 to  $381,000  in 2002.  This  decrease  was due to the
elimination of goodwill  amortization  in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."

Interest  Expense.  Interest  expense  decreased  in 2002  compared  to 2001 due
primarily to a reduction in our debt levels and lower  interest rates in 2002 as
compared to 2001.

Other Income  (Expense).  Other income was  $1,098,000 in 2002 compared to other
expense of $4,720,000 in 2001.  This  favorable  variance was due primarily to a
payment of $4,470,000 to terminate  our interest  rate swap  agreements  and the
write-off of deferred  financing  costs of  $1,976,000  in  connection  with the
refinancing of our debt in 2001 in accordance with SFAS No. 145,  "Rescission of
FASB  Statements  No. 4, 44, and 64,  Amendment  of FASB  Statement  No. 13, and
Technical Corrections."

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income taxes,  decreased  from 36.8% in 2001 to 36.2% in 2002 due to lower state
and local income taxes.

Liquidity and Capital Resources

Our need for  capital  historically  has  resulted  from  the  construction  and
acquisition of  restaurants,  the repurchase of our common shares and investment
in information technology systems. In the past, we have obtained capital through
public stock offerings,  debt financing, and our ongoing operations.  Cash flows
from our ongoing  operations  include cash  generated from company and franchise
operations,  credit from trade  suppliers,  real  estate  lease  financing,  and
landlord contributions to leasehold  improvements.  We have also used our common
stock as consideration in the acquisition of restaurants.  In addition,  we have
assumed  debt or  issued  new  debt  in  connection  with  certain  mergers  and
acquisitions.

Capital  expenditures  were $64,874,000 in 2002 (excluding the acquisition of 21
restaurants)   and   $82,562,000  in  2003  (excluding  the  acquisition  of  11
restaurants).  We currently expect to open at least 28 company restaurants,  and
capital  expenditures   excluding   acquisitions  are  expected  to  be  between
$80,000,000 and $90,000,000 in 2004.  These  expenditures  will primarily be for
the development of new restaurants,  refurbishment  and capital  replacement for
existing  restaurants,  and the enhancement of information  systems.  Because we
expect to  continue  to  purchase a portion  of our sites,  the amount of actual
capital  expenditures will be dependent upon, among other things, the proportion
of leased versus owned properties. In addition, if we open more restaurants than
we  currently  anticipate  or  acquire  additional   restaurants,   our  capital
requirements will increase accordingly.

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.

On March 24,  2003,  we  acquired  the  operations  and assets of 11  Applebee's
restaurants located in Illinois,  Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee. The total cash payment
included $20,800,000 paid at closing,  approximately  $200,000 paid as a deposit
in fiscal 2002 and  approximately  $800,000 paid in the second  quarter of 2003.
Our financial statements reflect the results of operations for these restaurants
subsequent to the date of acquisition.

                                       24
<PAGE>

On July 20, 2003,  we completed  the sale of eight  company  restaurants  in the
Atlanta, Georgia market to an affiliate of an existing franchisee for $8,000,000
and recognized an immaterial gain in our consolidated statements of earnings. In
connection with the sale of these  restaurants,  we closed one restaurant in the
Atlanta market in June 2003. This transaction did not have a significant  impact
on our net earnings for fiscal 2003.

Our bank credit agreement, as amended,  expires in November of 2005 and provides
for a $150,000,000 unsecured revolving credit facility, of which $25,000,000 may
be used for the  issuance  of  letters  of credit.  The  facility  is subject to
various  covenants  and  restrictions  which,  among other  things,  require the
maintenance  of  stipulated   fixed  charge,   leverage  and   indebtedness   to
capitalization ratios, as defined, and limit additional indebtedness and capital
expenditures  in excess of  specified  amounts.  Cash  dividends  are limited to
$10,000,000  annually.   The  facility  is  subject  to  standard  other  terms,
conditions,  covenants,  and  fees.  We are  currently  in  compliance  with the
covenants  contained in our credit  agreement.  As of December 28, 2003,  we had
borrowings  of  $15,000,000  and had  standby  letters of credit of  $12,000,000
outstanding under our revolving credit facility.

During 2003, we repurchased  1,679,500  shares of our common stock at an average
price of $29.63 for an aggregate  cost of  $49,800,000.  In December  2003,  our
Board of Directors  authorized an additional  repurchase of  $80,000,000  of our
common stock. As of December 28, 2003, we had $99,800,000  remaining under these
authorizations.

As of December 28, 2003,  our liquid assets  totaled  $17,894,000.  These assets
consisted  of cash  and  cash  equivalents  in the  amount  of  $17,867,000  and
short-term  investments in the amount of $27,000.  The working  capital  deficit
increased from $45,607,000 as of December 29, 2002 to $62,710,000 as of December
28, 2003.  This  increase was due  primarily to the increase in the loss reserve
and unearned premiums related to the captive insurance  subsidiary and increases
in accrued bonuses and accounts payable and was partially offset by increases in
inventories and receivables.

We believe that our liquid assets and cash generated from  operations,  combined
with borrowings  available under our credit facilities,  will provide sufficient
funds for our  operating,  capital and other  requirements  for the  foreseeable
future.

                                       25

<PAGE>


The following table shows our debt amortization  schedule,  future capital lease
commitments (including principal and interest payments),  future operating lease
commitments  and  future  purchase  obligations  as of  December  28,  2003  (in
thousands):
<TABLE>
<CAPTION>

                                                                           Payments due by period
                                                   ----------------------------------------------------------------------
                    Certain                                        Less than 1       1-3           3-5      More than 5
             Contractual Obligations                   Total           year         Years         Years        years
-------------------------------------------------  -------------  ------------- ------------- ------------ -------------
<S>                                                <C>            <C>           <C>           <C>          <C>
Long-term Debt (excluding capital
    lease obligations)..........................     $  16,654      $     119     $  15,241     $    118     $   1,176
Capital Lease Obligations.......................         9,838            741         1,561        1,673         5,863
Operating Leases................................       215,486         18,863        35,328       34,658       126,637
Purchase Obligations - Company(1)...............       143,331         85,869        39,388       14,198         3,876
Purchase Obligations - Franchise(2).............       318,134        181,215       103,522       21,708        11,689
</TABLE>

(1) The amounts for company purchase  obligations  include  commitments for food
items and supplies, severance and employment agreements, and other miscellaneous
commitments.

(2) The amounts for franchise purchase  obligations include commitments for food
items and supplies made by Applebee's  International,  Inc. for our franchisees.
Applebee's  International,  Inc.  contracts  with  certain  suppliers  to ensure
competitive   pricing.   These  amounts  will  only  be  payable  by  Applebee's
International,  Inc. if our franchisees do not meet certain minimum  contractual
requirements.

Other Contractual Obligations

We have outstanding lease guarantees of approximately $24,300,000 as of December
28, 2003 (see Note 15 to our  Consolidated  Financial  Statements).  We have not
recorded a liability  for these  guarantees  as of December 28, 2003 or December
29, 2002.

We have  severance and  employment  agreements  with certain  officers and other
senior executives  providing for severance  payments to be made in the event the
employee resigns or is terminated related to a change in control. The agreements
define the  circumstances  which will  constitute  a change in  control.  If the
severance  payments  had been due as of December  28,  2003,  we would have been
required to make payments totaling  approximately  $11,400,000.  In addition, we
have severance and  employment  agreements  with certain  officers which contain
severance provisions not related to a change in control.  Those provisions would
have required  aggregate  payments of approximately  $6,800,000 if such officers
had been terminated as of December 28, 2003.

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants located in the Washington, D.C. area from a franchisee. The purchase
agreement provides for additional  consideration in July 2004 if the restaurants
achieve  cash flows in excess of  historical  levels.  The amount of  additional
payments,  if any, under this agreement will not be material to our consolidated
financial statements.

Inflation

Substantial  increases in costs and expenses could impact our operating  results
to the extent such increases cannot be passed along to customers. In particular,
increases  in  food,  supplies,  labor  and  operating  expenses  could  have  a
significant  impact on our operating  results.  We do not believe that inflation
has materially affected our operating results during the past three years.

                                       26
<PAGE>

A majority of our  employees  are paid hourly rates related to federal and state
minimum  wage laws and  various  laws that allow for  credits to that wage.  The
Federal  government  continues  to consider  an  increase  in the minimum  wage.
Several  state  governments  have  increased  the  minimum  wage and other state
governments are also considering an increased minimum wage. In the past, we have
been able to pass along cost  increases to  customers  through food and beverage
price  increases,  and  we  will  attempt  to do so in  the  future.  We  cannot
guarantee,  however,  that all future cost  increases  can be  reflected  in our
prices or that increased  prices will be absorbed by customers  without at least
somewhat diminishing customer spending in our restaurants.

New Accounting Pronouncements

In June 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities."  This
Statement  requires  that a  liability  for a cost  associated  with  an exit or
disposal activity be recognized only when the liability is incurred and measured
at fair value.  SFAS No. 146 is effective for exit or disposal  activities  that
are initiated after December 31, 2002. The initial adoption of this Statement in
January  2003 did not have a material  impact on our  results of  operations  or
financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure  of Indirect  Guarantees  of  Indebtedness  of Others," and provides
guidance to guarantors on the recognition and disclosure concerning  obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement  provisions of  Interpretation  No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively.   The  disclosure   requirements  were  effective  for  financial
statements  for interim or annual  periods  ending after  December 15, 2002.  We
adopted the initial  recognition  provisions of Interpretation No. 45 in January
of 2003. The initial adoption of  Interpretation  No. 45 did not have a material
impact on our results of operations or financial position.

In  December  2003,  the  FASB  issued  FASB  Interpretation  No.  ("FIN")  46R,
"Consolidation of Variable Interest Entities and  Interpretation of ARB No. 51."
This interpretation,  which replaces FASB Interpretation No. 46,  "Consolidation
of Variable Interest Entities," clarifies the application of Accounting Research
Bulletin No. 51,  "Consolidated  Financial  Statements," to certain  entities in
which  equity  investors  do  not  have  the  characteristics  of a  controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities without additional  subordinated  financial support. This
interpretation  is required in  financial  statements  for periods  ending after
March 15, 2004 for those  companies that have yet to adopt the provisions of FIN
46. We are currently  assessing FIN  46R and, although we have not completed our
analysis,  we do not  expect  the  adoption  to have a  material  impact  on our
consolidated financial statements.

Forward-Looking Statements

The  statements  contained  in the  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  section  regarding  restaurant
development,  capital expenditures and financial commitments are forward-looking
and based on current  expectations.  There are several  risks and  uncertainties
that could cause actual results to differ materially from those described. These
risks  include  but are not  limited  to our  ability  and  the  ability  of our
franchisees to open and operate additional restaurants  profitably,  the ability
of our franchisees to obtain financing, the continued growth of our franchisees,
our ability to attract and retain qualified  franchisees,  the impact of intense
competition  in the casual dining segment of the  restaurant  industry,  and our
ability to control  restaurant  operating  costs  which are  impacted  by market
changes, minimum wage and other employment laws, food costs and inflation. For a
more  detailed  discussion  of the  principal  factors  that could cause  actual
results to be materially  different,  you should read our current report on Form
8-K which we filed with the Securities  and Exchange  Commission on February 11,
2004. We disclaim any obligation to update forward-looking statements.

                                       27
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in
commodity  prices.  Our revolving  credit  facility bears interest either at the
bank's prime rate or LIBOR plus 0.625%,  at our option. As of December 28, 2003,
the total amount of debt subject to interest rate  fluctuations was $15,000,000.
A 1% change in  interest  rates  would  result in an  increase  or  decrease  in
interest  expense  of  $150,000  per year.  We may from time to time  enter into
interest  rate swap  agreements to manage the impact of interest rate changes on
our  earnings.  Many of the food  products  we  purchase  are  subject  to price
volatility  due to factors  that are outside of our control  such as weather and
seasonality.  As part of our  strategy  to  moderate  this  volatility,  we have
entered into fixed price purchase commitments.

Item 8.  Financial Statements and Supplementary Data

See the Index to Consolidated Financial Statements on Page F-1.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

As of December 28, 2003, we have evaluated the  effectiveness  of the design and
operation of our disclosure  controls and procedures  under the  supervision and
with  the  participation  of the  Chief  Executive  Officer  ("CEO")  and  Chief
Financial Officer ("CFO"). Based on this evaluation,  our management,  including
the CEO and CFO,  concluded  that our disclosure  controls and  procedures  were
effective.  During our most recent fiscal quarter, there have been no changes in
our internal control over financial reporting that occurred that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.

                                       28
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

If you would like information about our executive officers,  you should read the
section entitled "Executive and Other Senior Officers of the Registrant" in Part
I of this report. You should read the information under the caption "Information
About the Board of  Directors  and  Executive  and Other  Senior  Officers"  for
information on our Board of Directors and the caption  "Section 16(a) Beneficial
Ownership  Reporting  Compliance"  for  information  regarding our Section 16(a)
ownership  compliance  located in the Proxy  Statement for the Annual Meeting of
Stockholders  to be  held  on  or  about  May  13,  2004.  We  incorporate  that
information in this document by reference.

Our Board of  Directors  has  adopted a Code of Conduct  for all  employees  and
directors.   A  copy  of  this   document  is   available   on  our  website  at
www.applebees.com, free of charge under the Invester/Media Relations section. We
will satisfy any disclosure  requirements under Item 10 on Form 8-K regarding an
amendment  to, or waiver  from,  any  provision  of the Code with respect to our
principal executive officer,  principal financial officer,  principal accounting
officer and persons  performing  similar  functions by disclosing  the nature of
such amendment or waiver on our website or in a report on Form 8-K.

Our Board of Directors has determined  that Mr. Eric L. Hansen,  a member of the
audit committee and an independent  director,  is an audit  committee  financial
expert, as defined under 401(h) of Regulation S-K.

Item 11. Executive Compensation

If you would like information about our executive compensation,  you should read
the information  under the caption  "Executive  Compensation"  and  "Information
About the Board of Directors  and  Executive  and Other Senior  Officers" in the
Proxy  Statement for the Annual Meeting of  Stockholders  to be held on or about
May 13, 2004. We incorporate that information in this document by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

If you  would  like  information  about the stock  owned by our  management  and
certain large  stockholders and our equity  compensation  plans, you should read
the information  under the caption "Stock  Ownership of Officers,  Directors and
Major  Stockholders"  and "Equity  Compensation  Plan  Information" in the Proxy
Statement for the Annual Meeting of  Stockholders to be held on or about May 13,
2004. We incorporate that information in this document by reference.

Item 13. Certain Relationships and Related Transactions

If you would like information about certain transactions which we have completed
or  certain  relationships  which we have  entered  into,  you  should  read the
information under the caption "Certain  Transactions" in the Proxy Statement for
the  Annual  Meeting of  Stockholders  to be held on or about May 13,  2004.  We
incorporate that information in this document by reference.

Item 14. Principal Accounting Fees and Services

If you would like information  about fees paid to our auditors,  you should read
the  information  under the caption "Fees and Services of Deloitte & Touche LLP"
in the Proxy  Statement for the Annual Meeting of  Stockholders to be held on or
about  May 13,  2004.  We  incorporate  that  information  in this  document  by
reference.


                                       29
<PAGE>


                                     PART IV

Item 15. Exhibits and Reports on Form 8-K

(a) List of documents filed as part of this report:

         1.   Financial Statements:

              The financial  statements  are listed in  the accompanying  "Index
              to Consolidated Financial Statements" on Page F-1.

         2.   Financial Statement Schedules:

              None.

         3.   Exhibits:

              The  exhibits  filed  with  or  incorporated  by reference in this
              report  are listed on the  Exhibit Index  beginning  on  page E-1.

(b) Reports on Form 8-K:

         We filed a report  on Form 8-K on  October  20,  2003,  announcing  the
         temporary suspension of trading under one of our benefit plans.

         We  furnished a report on Form 8-K on October 23, 2003  announcing  the
         broadcast of our third quarter 2003 earnings  conference  call over the
         Internet.

         We furnished a report on Form 8-K on October 30, 2003, announcing third
         quarter 2003 diluted earnings per share of 45 cents.

         We furnished a report on Form 8-K on November 10, 2003,  announcing our
         presentation at the Oppenheimer & Company 2003 Restaurant Conference.

         We filed a report on Form 8-K on December 1, 2003,  announcing November
         comparable sales.

         We filed a report  on Form 8-K on  December  12,  2003,  announcing  an
         increased annual dividend and a stock repurchase authorization.


                                       30
<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                         APPLEBEE'S INTERNATIONAL, INC.


Date:    March 8, 2004                 By:   /s/   Lloyd L. Hill
     --------------------------------     --------------------------------
                                          Lloyd L. Hill
                                          Chairman and Chief Executive Officer


                                POWER OF ATTORNEY

KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lloyd L. Hill and Rebecca R. Tilden,  and each of
them,  his true and  lawful  attorney-in-fact  and  agent,  with  full  power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  to sign any  amendments to this Form 10-K, and to file
the same,  with exhibits  thereto and other  documents in connection  therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes,  may do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


By: /s/   Lloyd L. Hill                Date:            March 8, 2004
    ------------------------------           -----------------------------------
    Lloyd L. Hill
    Director, Chairman of the Board and Chief
    Executive Officer
    (principal executive officer)

By: /s/   Steven K. Lumpkin            Date:            March 8, 2004
    ------------------------------            ----------------------------------
    Steven K. Lumpkin
    Director, Executive Vice President and Chief
    Financial Officer
    (principal financial officer)

By: /s/   Beverly O. Elving            Date:            March 8, 2004
    ------------------------------            ----------------------------------
    Beverly O. Elving
    Vice President, Accounting
    (principal accounting officer)

                                       31

<PAGE>



By: /s/   Erline Belton                       Date:     March 8, 2004
    ------------------------------            ----------------------------------
    Erline Belton
    Director


By: /s/   Douglas R. Conant                   Date:     March 8, 2004
    ------------------------------            ----------------------------------
    Douglas R. Conant
    Director


By: /s/   D. Patrick Curran                   Date:     March 8, 2004
    ------------------------------            ----------------------------------
    D. Patrick Curran
    Director


By: /s/   Eric L. Hansen                      Date:     March 8, 2004
    ------------------------------            ----------------------------------
    Eric L. Hansen
    Director


By: /s/   Mark S. Hansen                      Date:     March 8, 2004
    ------------------------------            ----------------------------------
    Mark S. Hansen
    Director


By: /s/   Jack P. Helms                       Date:     March 8, 2004
    ------------------------------            ----------------------------------
    Jack P. Helms
    Director


By: /s/   Burton M. Sack                      Date:     March 8, 2004
    ------------------------------            ----------------------------------
    Burton M. Sack
    Director

                                       32

<PAGE>



                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                   Index to consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                                                                  Page
    <S>                                                                                                           <C>


    Independent Auditors' Report..............................................................................     F-2

    Consolidated Balance Sheets as of December 28, 2003 and
         December 29, 2002  ..................................................................................     F-3

    Consolidated Statements of Earnings for the fiscal years ended
         December 28, 2003, December 29, 2002 and December 30, 2001...........................................     F-4

    Consolidated Statements of Stockholders' Equity for the fiscal Years
         Ended December 28, 2003, December 29, 2002 and December 30, 2001.....................................     F-5

    Consolidated Statements of Cash Flows for the fiscal years ended
         December 28, 2003, December 29, 2002 and December 30, 2001...........................................     F-6

    Notes to Consolidated Financial Statements................................................................     F-8

</TABLE>

                                       F-1


<PAGE>


                          Independent Auditors' Report


To the Board of Directors
Applebee's International, Inc. and Subsidiaries
Overland Park, Kansas

We have  audited the  accompanying  consolidated  balance  sheets of  Applebee's
International, Inc. and subsidiaries (the "Company") as of December 28, 2003 and
December  29,  2002,  and  the  related  consolidated  statements  of  earnings,
stockholders'  equity and cash flows for each of the three  fiscal  years in the
period  ended   December  28,  2003.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of December 28, 2003
and December 29, 2002, and the results of their  operations and their cash flows
for each of the three  fiscal years in the period  ended  December 28, 2003,  in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 8 to the  consolidated  financial  statements,  the Company
changed its method of accounting for goodwill and other  intangible  assets with
the adoption of Statement of Financial  Accounting  Standards No. 142, "Goodwill
and Other Intangible Assets," on December 31, 2001.




Deloitte & Touche LLP

Kansas City, Missouri
March 4, 2004

                                      F-2
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                        December 28,      December 29,
                                                                                            2003              2002
                                                                                        ------------     -------------
                                                               ASSETS
<S>                                                                                     <C>              <C>
Current assets:
    Cash and cash equivalents......................................................      $  17,867        $  15,169
    Short-term investments, at market value........................................             27              503
    Receivables, net of allowance..................................................         31,950           26,092
    Receivables related to captive insurance subsidiary............................            450            1,803
    Inventories....................................................................         20,799           11,504
    Prepaid income taxes...........................................................          5,800            5,002
    Prepaid and other current assets...............................................          9,729            9,506
                                                                                        ------------     ------------
         Total current assets......................................................         86,622           69,579
Property and equipment, net........................................................        419,802          383,002
Goodwill...........................................................................        105,326           88,715
Restricted assets related to captive insurance subsidiary..........................         10,763              --
Franchise interest and rights, net.................................................          1,137            1,468
Other assets, net..................................................................         20,351           23,350
                                                                                        ------------     ------------
                                                                                         $ 644,001        $ 566,114
                                                                                        ============     ============


                                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt..............................................      $     192        $     377
    Accounts payable...............................................................         37,633           27,479
    Accrued expenses and other current liabilities.................................         96,637           82,204
    Loss reserve and unearned premiums related to captive insurance subsidiary.....         11,007            1,803
    Accrued dividends..............................................................          3,863            3,323
                                                                                        ------------     ------------
         Total current liabilities.................................................        149,332          115,186
                                                                                        ------------     ------------
Non-current liabilities:
    Long-term debt - less current portion..........................................         20,670           52,186
    Other non-current liabilities..................................................         14,267            6,161
                                                                                        ------------     ------------
         Total non-current liabilities.............................................         34,937           58,347
                                                                                        ------------     ------------
         Total liabilities.........................................................        184,269          173,533
                                                                                        ------------     ------------
Commitments and contingencies (Notes 10, 11 and 15)
Stockholders' equity:
    Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;
         no shares issued..........................................................            --               --
    Common stock - par value $0.01 per share:  authorized - 125,000,000 shares;
         issued - 72,336,788 shares................................................            723              723
    Additional paid-in capital.....................................................        200,574          187,523
    Retained earnings..............................................................        524,316          434,621
    Accumulated other comprehensive income, net of income taxes....................            --                16
                                                                                        ------------     ------------
                                                                                           725,613          622,883
    Treasury stock - 17,143,845 shares in 2003 and 16,948,371 shares in 2002, at
         cost......................................................................       (265,881)        (230,302)
                                                                                        ------------     ------------
         Total stockholders' equity................................................        459,732          392,581
                                                                                        ------------     ------------
                                                                                         $ 644,001        $ 566,114
                                                                                        ============     ============


</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                  Fiscal Year Ended
                                                                  --------------------------------------------------
                                                                   December 28,      December 29,      December 30,
                                                                       2003              2002              2001
                                                                  --------------    --------------    --------------
<S>                                                               <C>                <C>               <C>
Revenues:
    Company restaurant sales................................        $ 867,158          $ 724,616         $ 651,119
    Franchise royalties and fees............................          109,833            102,180            93,225
    Other franchise income..................................           13,147              2,688               --
                                                                  --------------    --------------    --------------
         Total operating revenues...........................          990,138            829,484           744,344
                                                                  --------------    --------------    --------------
Cost of company restaurant sales:
    Food and beverage.......................................          225,346            192,424           175,977
    Labor...................................................          283,745            238,266           208,996
    Direct and occupancy....................................          216,677            181,767           164,965
    Pre-opening expense.....................................            1,950              1,974             1,701
                                                                  --------------    --------------    --------------
         Total cost of company restaurant sales.............          727,718            614,431           551,639
                                                                  --------------    --------------    --------------
Cost of other franchise income..............................           12,697              2,173               --
General and administrative expenses.........................           95,013             81,653            72,935
Amortization of intangible assets...........................              364                381             5,851
Loss on disposition of restaurants and equipment............              699              1,138             1,492
                                                                  --------------    --------------    --------------
Operating earnings..........................................          153,647            129,708           112,427
                                                                  --------------    --------------    --------------
Other income (expense):
    Investment income.......................................            1,554              1,498             1,650
    Interest expense........................................           (1,733)            (2,168)           (7,456)
    Impairment of Chevys note receivable (Note 5)...........           (8,803)               --                --
    Other income (expense)..................................            1,520              1,098            (4,720)
                                                                  --------------    --------------    --------------
         Total other income (expense).......................           (7,462)               428           (10,526)
                                                                  --------------    --------------    --------------
Earnings before income taxes................................          146,185            130,136           101,901
Income taxes................................................           52,627             47,109            37,500
                                                                  --------------    --------------    --------------
Net earnings................................................        $  93,558          $  83,027         $  64,401
                                                                  ==============    ==============    ==============
Basic net earnings per common share.........................        $    1.69          $    1.49         $    1.16
                                                                  ==============    ==============    ==============
Diluted net earnings per common share.......................        $    1.64          $    1.46         $    1.13
                                                                  ==============    ==============    ==============
Basic weighted average shares outstanding...................           55,296             55,605            55,512
                                                                  ==============    ==============    ==============
Diluted weighted average shares outstanding.................           56,939             56,922            56,877
                                                                  ==============    ==============    ==============

</TABLE>





                 See notes to consolidated financial statements.

                                      F-4
<PAGE>
                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                               Accumulated
                                                                                                  Other
                                                        Common Stock     Additional           Comprehensive                Total
                                                     ------------------  Paid-In    Retained     Income      Treasury  Stockholders'
                                                       Shares    Amount  Capital    Earnings     (Loss)       Stock       Equity
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
<S>                                                 <C>          <C>    <C>        <C>         <C>         <C>           <C>
Balance, December 31, 2000.......................... 72,336,788   $ 723  $ 172,037  $293,531    $     39    $(184,612)    $ 281,718

Comprehensive income:
   Net earnings.....................................         --     --         --     64,401         --          --          64,401
   Change in unrealized gain on short-term
       investments, net of income taxes.............         --     --         --        --          (25)        --             (25)
   Transition adjustment related to financial
       instruments, net of taxes....................         --     --         --        --         (250)        --            (250)
   Change in fair value of derivative instruments...         --     --         --        --       (4,220)        --          (4,220)
   Adjustment for termination of interest rate
       swap agreements..............................         --     --         --        --        4,470         --           4,470
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Total comprehensive income..........................         --     --         --     64,401         (25)        --          64,376
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
   Purchases of treasury stock......................         --     --         --        --          --       (44,987)      (44,987)
   Dividends declared on common stock, $0.05 per
       share........................................         --     --         --     (2,982)        --          --          (2,982)
   Stock options exercised and related tax benefit..         --     --       7,472       --          --        16,518        23,990
   Shares issued under employee benefit plans.......         --     --         870       --          --         1,392         2,262
   Restricted shares awarded under equity
       incentive plan, net of cancellations.........         --     --        (254)      --          --           383           129
   Unearned compensation relating to restricted
       shares.......................................         --     --         326       --          --          --             326
   Net repayments of notes receivable from officers
       for stock sales..............................         --     --         351       --          --          --             351
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Balance, December 30, 2001.......................... 72,336,788     723    180,802   354,950          14     (211,306)      325,183

Comprehensive income:
   Net earnings.....................................         --     --         --     83,027         --          --          83,027
   Change in unrealized gain on short-term
       investments, net of income taxes.............         --     --         --        --            2         --               2
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
Total comprehensive income..........................         --     --         --    183,027           2         --          83,029
                                                     ----------- ------- ---------- --------- ------------- ---------- -------------
   Purchases of treasury stock......................         --     --         --        --          --       (26,113)      (26,113)
   Dividends declared on common stock, $0.06 per
       share........................................         --     --         --     (3,323)        --          --          (3,323)
   Stock options exercised and related tax benefit..         --     --       2,796       --          --         4,495         7,291
   Shares issued under employee benefit plans.......         --     --       2,741       --          --         2,129         4,870
   Restricted shares awarded under equity incentive
       plan.........................................         --     --           8       --          --           493           501
   Unearned compensation relating to restricted
       shares.......................................         --     --         659       --          --          --             659
   Net repayments of notes receivable from officers
       for stock sales..............................         --     --         517       --          --          --             517
   Dividends paid for fractional shares.............         --     --         --        (33)        --          --             (33)
                                                     ----------- ------- ---------- ---------- ------------ ---------- -------------

Balance, December 29, 2002..........................  72,336,788    723    187,523   434,621          16     (230,302)      392,581

Comprehensive income:
   Net earnings.....................................         --     --         --     93,558         --          --          93,558
   Change in unrealized gain on short-term
       investments, net of income taxes.............         --     --         --        --          (16)        --             (16)
                                                     ----------- ------- ---------- ---------- ------------ ---------- -------------
Total comprehensive income..........................         --     --         --     93,558         (16)        --          93,542
                                                     ----------- ------- ---------- ---------- ------------ ---------- -------------
   Purchases of treasury stock......................         --     --         --        --          --       (49,757)      (49,757)
   Dividends declared on common stock, $0.07 per
       share........................................         --     --         --     (3,863)        --          --          (3,863)
   Stock options exercised and related tax benefit..         --     --       9,884       --          --        11,898        21,782
   Shares issued under employee benefit plans.......         --     --       2,554       --          --         1,732         4,286
   Restricted shares awarded under equity
       incentive plan, net of cancellations.........         --     --        (497)      --          --           548            51
   Unearned compensation relating to restricted
       shares.......................................         --     --       1,011       --          --          --           1,011
   Net repayments of notes receivable from officers
       for stock sales..............................         --     --          99       --          --          --              99
                                                     ----------- ------- ---------- ---------- ------------ ---------- -------------
Balance, December 28, 2003.......................... 72,336,788   $ 723  $ 200,574  $524,316    $    --     $(265,881)    $ 459,732
                                                     =========== ======= ========== ========== ============ ========== =============

</TABLE>
                 See notes to consolidated financial statements.

                                      F-5
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                     Fiscal Year Ended
                                                                       ----------------------------------------------
                                                                        December 28,    December 29,    December 30,
                                                                            2003            2002            2001
                                                                       --------------  --------------  --------------
<S>                                                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings.....................................................      $  93,558       $  83,027       $  64,401
  Adjustments to reconcile net earnings to net cash
     provided by operating activities:
        Depreciation and amortization..............................         40,663          35,110          31,780
        Amortization of intangible assets..........................            364             381           5,851
        Write-off of deferred financing costs......................            --              --            1,976
        Amortization of deferred financing costs...................            195             195             648
        Deferred income tax provision (benefit)....................          1,995           3,296          (4,520)
        Gain on sale of investments................................            (24)            --              --
        Loss on disposition of restaurants and equipment...........            699           1,138           1,492
        Impairment of Chevys note receivable.......................          8,803             --              --
        Income tax benefit from exercise of stock options..........          7,606           1,905           4,807
  Changes in assets and liabilities (exclusive of effects of
     acquisitions or dispositions):
        Receivables................................................         (5,962)         (3,158)         (3,067)
        Receivables related to captive insurance subsidiary........          1,353             --              --
        Inventories................................................         (9,139)         (1,067)          2,451
        Prepaid income taxes.......................................           (798)            --              --
        Prepaid and other current assets...........................          1,063          (4,358)         (3,992)
        Accounts payable...........................................         10,233           5,283          (4,360)
        Accrued expenses and other current liabilities.............         15,074          10,795           9,040
        Loss reserve and unearned premiums related to captive
          insurance subsidiary.....................................          9,204             --              --
        Accrued income taxes.......................................            --             (979)           (121)
        Other......................................................          1,002           1,065          (2,323)
                                                                       --------------  --------------  --------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES..................        175,889         132,633         104,063
                                                                       --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment...........................        (82,562)        (64,874)        (50,086)
     Acquisition of restaurants....................................        (21,557)        (34,250)            --
     Proceeds from sale of restaurants and equipment...............          9,228             279             433
     Purchases of short-term investments...........................            --             (150)           (200)
     Maturities and sales of short-term investments................            480             350             774
     Restricted assets related to captive insurance subsidiary.....        (10,763)            --              --
                                                                       --------------  --------------  --------------
        NET CASH USED BY INVESTING ACTIVITIES......................       (105,174)        (98,645)        (49,079)
                                                                       --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchases of treasury stock...................................        (49,757)        (26,113)        (44,987)
     Dividends paid................................................         (3,323)         (3,010)         (2,779)
     Issuance of common stock upon exercise of stock options.......         14,176           5,386          19,183
     Shares issued under employee benefit plans....................          4,286           4,870           2,262
     Proceeds from issuance of long-term debt......................            --              --           70,000
     Deferred financing costs relating to issuance of long-term
        debt.......................................................            --              --             (577)
     Net payments on long-term debt................................        (33,399)        (22,000)        (86,801)
                                                                       --------------  --------------  --------------
        NET CASH USED BY FINANCING ACTIVITIES......................        (68,017)        (40,867)        (43,699)
                                                                       --------------  --------------  --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...............          2,698          (6,879)         11,285
CASH AND CASH EQUIVALENTS, beginning of period.....................         15,169          22,048          10,763
                                                                       --------------  --------------  --------------
CASH AND CASH EQUIVALENTS, end of period...........................      $  17,867       $  15,169       $  22,048
                                                                       ==============  ==============  ==============

</TABLE>

                 See notes to consolidated financial statements.

                                      F-6

<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                               Fiscal Year Ended
                                                             ------------------------------------------------------
                                                               December 28,       December 29,       December 30,
                                                                   2003               2002               2001
                                                             -----------------  -----------------  ----------------
<S>                                                            <C>                <C>                <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the year for:
         Income taxes....................................       $    45,557        $    44,983        $    40,147
                                                             =================  =================  ================
         Interest........................................       $     1,079        $     1,532        $     7,728
                                                             =================  =================  ================
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

We issued  restricted  common stock, net of forfeitures,  of $1,842,000 in 2003,
$1,258,000 in 2002 and $764,000 in 2001.

On March 24, 2003, we assumed a loan of  approximately  $1,400,000 in connection
with the acquisition of 11 restaurants.

DISCLOSURE OF ACCOUNTING POLICY:

For  purposes of the  consolidated  statements  of cash flows,  we consider  all
highly liquid  investments  purchased with a maturity of three months or less to
be cash equivalents.




                 See notes to consolidated financial statements.

                                      F-7

<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Organization

Applebee's  International,  Inc.  and our  subsidiaries  develop, franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar." As of  December  28,  2003,  there  were 1,585  Applebee's  restaurants.
Franchisees operated 1,202 of these restaurants and 383 restaurants were company
operated.  These  restaurants  were located in 49 states and nine  international
countries.

On  September  20, 2002,  we formed  Neighborhood  Insurance,  Inc., a regulated
Vermont  corporation  and a  wholly-owned  subsidiary,  as a  captive  insurance
company.  Neighborhood  Insurance,  Inc. was  established to provide  Applebee's
International,  Inc. and qualified  franchisees  with workers'  compensation and
general liability insurance (see Note 12).

2.  Summary of Significant Accounting Policies

Principles of consolidation:  The consolidated  financial statements include our
accounts and the accounts of our wholly-owned  subsidiaries.  We have eliminated
all intercompany profits, transactions and balances.

Fiscal year:  Our fiscal year ends on the last Sunday of the calendar  year. The
fiscal years ended  December  28, 2003,  December 29, 2002 and December 30, 2001
each  contained 52 weeks.  These fiscal years will be referred to as 2003,  2002
and 2001, respectively.

Short-term investments:  Short-term investments are comprised of certificates of
deposit and preferred stocks. We determine gains and losses from sales using the
specific  identification method. As of December 28, 2003, we have classified all
short-term investments as available-for-sale.

Financial  instruments:  Our financial  instruments  as of December 28, 2003 and
December  29,  2002  consist of cash  equivalents,  short-term  investments  and
long-term debt, excluding capitalized lease obligations.  The carrying amount of
cash equivalents  approximates fair value because of the short maturity of those
instruments.  We based the carrying  amount of short-term  investments on quoted
market  prices.  We  based  the  fair  value of our  long-term  debt,  excluding
capitalized lease  obligations,  on quotations made on similar issues.  The fair
value of these financial instruments  approximates the carrying amounts reported
in the consolidated balance sheets.

Interest  rate swap  agreements:  In 1998,  we entered into  interest  rate swap
agreements  to manage our  exposure to  interest  rate  fluctuations.  Effective
January 1, 2001, we adopted the provisions of Statement of Financial  Accounting
Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities,"  as amended by SFAS Nos.  137 and 138,  which  require an entity to
recognize all  derivatives as either assets or liabilities on the balance sheet.
The  Statement  also  requires  changes  in the  fair  value  of the  derivative
instruments to be recorded in either net earnings or other comprehensive  income
depending  on their  intended  use. Our interest  rate swap  agreements  met the
criteria  for  hedge   accounting   under  the  Statement.   We  recognized  the
differential which we paid or received over the term of the swap agreements as a
component of interest expense. In November 2001, we terminated our interest rate
swap agreements in connection with the refinancing of our  then-existing  credit
facilities.  The  costs  relating  to the  termination  of these  agreements  of
$4,470,000 are reflected in other expense in the 2001 consolidated  statement of
income. These interest rate swap agreements were the only derivative instruments
held during fiscal year 2001 as defined under SFAS No. 133. We have not held any
financial  derivative  instruments  since we  terminated  our interest rate swap
agreements in fiscal year 2001.

                                      F-8
<PAGE>

Inventories:  We state  inventories  at the lower of cost,  using the  first-in,
first-out method, or market.

Pre-opening  expense:  We expense  direct  training  and other costs  related to
opening new or relocated restaurants in the month of opening.

Property and  equipment:  We state  property and equipment at  historical  cost.
Depreciation is provided primarily on a straight-line  method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of the lease term,  including  renewal options,  or the estimated useful life of
the related  asset.  The general  ranges of  original  depreciable  lives are as
follows:

o        Buildings                          20 years
o        Leasehold improvements             15-20 years
o        Furniture and equipment            2-7 years

We  record  capitalized  interest  in  connection  with the  development  of new
restaurants and amortize it over the estimated useful life of the related asset.
We capitalized  $264,000 in interest costs during 2003, $300,000 during 2002 and
$523,000 during 2001.

Software  costs:  In  accordance  with  American  Institute of Certified  Public
Accountants'  Statement of Position 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal  Use,"  certain  costs  incurred in
connection  with  internal-use  software  projects are capitalized and amortized
over the expected useful life of the asset.

In accordance with SFAS No. 86,  "Accounting for the Costs of Computer  Software
to  Be  Sold,   Leased,  or  Otherwise   Marketed,"  we  have  also  capitalized
approximately $1,700,000 and $1,200,000 as of December 28, 2003 and December 29,
2002, respectively, for costs incurred for software projects that may be sold to
our franchisees.  We have not made these products available to our customers and
accordingly, have not begun amortization of these costs.

Goodwill:  Goodwill  represents the excess of cost over fair market value of net
assets we have  acquired.  Through  2001,  we  amortized  goodwill  over periods
ranging from 15 to 20 years on a straight-line basis.  Beginning in fiscal 2002,
we  ceased  amortization  of our  goodwill  in  accordance  with  SFAS No.  142,
"Goodwill and Other Intangible Assets" (see Note 8). Accumulated amortization as
of December 28, 2003 and December 29, 2002 was $30,348,000.

Impairment of long-lived  assets:  We review  long-lived  assets for  impairment
whenever  events or changes in  circumstances  indicate that the carrying amount
may not be recoverable. We analyze potential impairments of tangible assets on a
restaurant-by-restaurant basis.

Franchise   interest  and  rights:   Franchise  interest  and  rights  represent
allocations  of the purchase  price of our 1988  acquisition  of the  Applebee's
concept to the  restaurants  we acquired and the  franchise  agreements  that we
assumed based on an independent valuation.  We amortize the allocated costs over
the  estimated  life  of  the  restaurants  or  the  franchise  agreements  on a
straight-line basis ranging from 7 to 20 years.

Franchise  royalties and fees: We recognize royalties on a franchisee's sales in
the period in which the sales are reported to have  occurred.  We also receive a
franchise fee for each  restaurant that a franchisee  opens.  The recognition of
franchise  fees is deferred  until we have  performed  substantially  all of our
related  obligations  as  franchisor,   typically  when  the  restaurant  opens.
Franchise  fees,  included in franchise  royalties and fees in the  consolidated
statements of earnings,  totaled  $2,769,000  for 2003,  $2,692,000 for 2002 and
$3,800,000 for 2001.

                                      F-9
<PAGE>

Other franchise income:  Other franchise income includes insurance premiums from
franchisee  participation  in our captive  insurance  company  and revenue  from
information  technology  products and services provided to certain  franchisees.
Income  from  franchisee   premiums  and  information   technology  services  is
recognized  ratably over the related  contract  period.  Income from information
technology  products  is  recognized  when the  products  are  installed  at the
restaurant.

Advertising   costs:  We  expense  most  advertising   costs  for  company-owned
restaurants as we incur them, but we expense the production costs of advertising
the first time the  advertising  takes  place.  Advertising  expense  related to
company-owned  restaurants was  $41,177,000  for 2003,  $34,547,000 for 2002 and
$32,259,000 for 2001.

Income taxes: We use the asset and liability method to determine deferred income
taxes.  Deferred tax assets and  liabilities  are computed based upon future tax
consequences   associated  with  differences  between  the  financial  statement
carrying amount and the tax bases of assets and liabilities.

Stock-based compensation:  We have adopted the disclosure provisions of SFAS No.
148,  "Accounting for Stock-Based  Compensation - Transition and Disclosure,  an
amendment  of  FASB  Statement  No.  123."  The  Statement   requires  prominent
disclosures in both annual and interim financial statements regarding the method
of accounting for stock-based employee compensation and the effect of the method
used on reported results.  We account for stock-based  compensation awards under
the intrinsic  method of  Accounting  Principles  Board ("APB")  Opinion No. 25.
Opinion No. 25 requires  compensation cost to be recognized based on the excess,
if any,  between the quoted  market  price of the stock at the date of grant and
the amount an employee must pay to acquire the stock.  All options awarded under
all of our plans are  granted  with an  exercise  price equal to the fair market
value on the date of the grant.  The following  table presents the effect on our
net  earnings  and  earnings  per share had we adopted the fair value  method of
accounting for  stock-based  compensation  under SFAS No. 123,  "Accounting  for
Stock-Based Compensation" (in thousands, except for per share amounts).
<TABLE>
<CAPTION>

                                                                2003              2002              2001
                                                          ----------------  ----------------  ----------------
    <S>                                                     <C>               <C>               <C>

    Net earnings, as reported..........................      $   93,558        $   83,027        $   64,401

    Add:   Compensation expense included in
           net earnings, net of related taxes..........           2,354               972               792
    Less:  Total stock-based employee
           compensation expense determined under
           fair value based methods for all awards,
           net of related taxes........................           9,752             6,570             5,204
                                                          ----------------  ----------------  ----------------

    Pro forma net earnings.............................      $   86,160        $   77,429        $   59,989
                                                          ================  ================  ================

    Basic net earnings per common share,
           as reported.................................      $     1.69        $     1.49        $     1.16
                                                          ================  ================  ================
    Basic net earnings, per common share,
           pro forma...................................      $     1.56        $     1.39        $     1.08
                                                          ================  ================  ================

    Diluted net earnings per common share,
           as reported.................................      $     1.64        $     1.46        $     1.13
                                                          ================  ================  ================
    Diluted net earnings per common share,
           pro forma...................................      $     1.51        $     1.36        $     1.05
                                                          ================  ================  ================
</TABLE>

                                      F-10
<PAGE>


The  weighted  average  fair value at date of grant for options  granted  during
2003, 2002 and 2001 was $10.66, $9.66 and $7.33 per share, respectively,  which,
for the  purposes  of this  disclosure,  is  assumed  to be  amortized  over the
respective  vesting period of the grants. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following  weighted  average  assumptions  used for grants in 2003, 2002 and
2001: dividend yield of 0.3%, 0.3% and 0.4%,  respectively;  expected volatility
of 44.9%, 46.9% and 48.7%,  respectively;  risk-free interest rate of 2.8%, 2.5%
and  4.2%,  respectively;  and  expected  lives  of  4.9,  5.2  and  5.0  years,
respectively.

Earnings  per share:  We compute  basic  earnings  per share by dividing  income
available to common shareholders by the weighted average number of common shares
outstanding for the reporting  period.  Diluted  earnings per share reflects the
potential  dilution that could occur if holders of options or other contracts to
issue common stock  exercised or converted  their  holdings  into common  stock.
Outstanding  stock  options and  equity-based  compensation  represent  the only
dilutive  effects  on  weighted  average  shares.  The chart  below  presents  a
reconciliation between basic and diluted weighted average shares outstanding and
the  related  earnings  per share.  All  amounts in the chart,  except per share
amounts, are expressed in thousands.

<TABLE>
<CAPTION>

                                                                2003              2002              2001
                                                          ----------------  ----------------  ----------------

<S>                                                         <C>               <C>               <C>
    Net earnings.......................................      $   93,558        $   83,027        $   64,401
                                                          ================  ================  ================

    Basic weighted average shares outstanding..........          55,296            55,605            55,512
    Dilutive effect of stock options and
         equity-based compensation.....................           1,643             1,317             1,365
                                                          ----------------  ----------------  ----------------
    Diluted weighted average shares outstanding........          56,939            56,922            56,877
                                                          ================  ================  ================

    Basic net earnings per common share................      $     1.69        $     1.49        $     1.16
                                                          ================  ================  ================
    Diluted net earnings per common share..............      $     1.64        $     1.46        $     1.13
                                                          ================  ================  ================
</TABLE>


We excluded  stock options with exercise  prices greater than the average market
price of our common stock for the  applicable  periods from the  computation  of
diluted weighted average shares outstanding.  There were approximately 34,000 of
these options for 2003, 118,000 options for 2002 and 183,000 options for 2001.

Gift cards:  We record a liability  in the period in which a gift card is issued
and proceeds are received. As gift cards are redeemed, this liability is reduced
and revenue is recognized as a sale.

Use of estimates:  The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions.  These estimates,  which
are frequently made in consultation with certain third-party advisors,  include,
but are not  limited to,  estimates  for legal  actions  and general  liability,
workers'  compensation  and  health  insurance,  long-term  incentives,  and the
collectibility of receivables.

We are  periodically  involved in various  legal  actions  arising in the normal
course of  business.  We are required to assess the  probability  of any adverse
judgments as well as the  potential  range of loss.  We  determine  the required
accruals after a review of the facts of each legal action.

The estimated liability for general liability,  workers' compensation and health
insurance  is  established  based upon  historical  claims data and  third-party
actuarial  estimates of  settlement  costs for incurred  claims.  We  recognized
expense of  $20,013,000  in 2003,  $14,072,000  in 2002 and  $12,222,000 in 2001
related to these types of insurance in our  consolidated  financial  statements.
Unanticipated changes in these factors may require us to revise our estimates.

                                      F-11
<PAGE>

We have various long-term employee incentive compensation plans which require us
to make estimates to determine our liability based upon projected performance of
plan  criteria.  If actual  performance  against the  criteria  differs from our
estimates  in  the  future,   we  will  be  required  to  adjust  our  liability
accordingly.

We  continually  assess the  collectibility  of our  franchise  receivables.  We
establish  our  allowance  for bad debts  based on  several  factors,  including
historical  collection  experience,  the current economic  environment and other
specific  information  available to us at the time.  The allowance for bad debts
may  change in the  future  due to  changes  in the  factors  above or other new
developments.

Estimates  and  assumptions  used by management  affect the reported  amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

New accounting pronouncements:  In June 2002, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 146,  "Accounting for Costs  Associated with Exit
or Disposal  Activities."  This  Statement  requires that a liability for a cost
associated  with an exit or  disposal  activity  be  recognized  only  when  the
liability is incurred and measured at fair value.  SFAS No. 146 is effective for
exit or disposal  activities  that are initiated  after  December 31, 2002.  The
initial  adoption  of this  Statement  in  January  2003 did not have a material
impact on our results of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure  of Indirect  Guarantees  of  Indebtedness  of Others," and provides
guidance to guarantors on the recognition and disclosure concerning  obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement  provisions of  Interpretation  No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively.   The  disclosure   requirements  were  effective  for  financial
statements  for interim or annual  periods  ending after  December 15, 2002.  We
adopted the initial  recognition  provisions of Interpretation No. 45 in January
of 2003. The initial adoption of  Interpretation  No. 45 did not have a material
impact on our results of operations or financial position.

In  December  2003,  the  FASB  issued  FASB  Interpretation  No.  ("FIN")  46R,
"Consolidation of Variable Interest Entities and  Interpretation of ARB No. 51."
This interpretation,  which replaces FASB Interpretation No. 46,  "Consolidation
of Variable Interest Entities," clarifies the application of Accounting Research
Bulletin No. 51,  "Consolidated  Financial  Statements," to certain  entities in
which  equity  investors  do  not  have  the  characteristics  of a  controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities without additional  subordinated  financial support. This
interpretation  is required in  financial  statements  for periods  ending after
March 15, 2004 for those  companies that have yet to adopt the provisions of FIN
46. We are currently  assessing FIN 46R and,  although we have not completed our
analysis,  we do not  expect  the  adoption  to have a  material  impact  on our
consolidated financial statements.

Reclassifications:  We have made certain  reclassifications  to the consolidated
financial statements to conform to the 2003 presentation.

3.  Acquisitions

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition. The purchase price of $34,250,000 has been allocated to
the fair value of property and equipment of $25,200,000, goodwill of $10,100,000
and other net current liabilities of $1,050,000.

                                      F-12
<PAGE>

On March 24,  2003,  we  acquired  the  operations  and assets of 11  Applebee's
restaurants located in Illinois,  Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee. The total cash payment
included $20,800,000 paid at closing,  approximately  $200,000 paid as a deposit
in fiscal 2002 and  approximately  $800,000 paid in the second  quarter of 2003.
Our financial statements reflect the results of operations for these restaurants
subsequent to the date of  acquisition.  The purchase price of  $23,200,000  has
been  allocated  to the fair value of  property  and  equipment  of  $7,900,000,
goodwill of $16,600,000, and other net liabilities of $1,300,000.

The  following  table is comprised of actual  company  restaurant  sales for the
restaurants acquired included in our consolidated  financial statements for each
period   presented  and  pro  forma  company   restaurant   sales  assuming  the
acquisitions occurred at the beginning of each respective period (in thousands):
<TABLE>
<CAPTION>

                                                             2003           2002            2001
                                                       --------------- --------------- ---------------
<S>                                                      <C>             <C>             <C>
Actual company restaurant sales
    for acquired restaurants.........................     $  66,300        $  6,300       $      --
                                                       =============== =============== ===============

Pro forma company restaurant sales
    for acquired restaurants.........................     $  72,400        $ 68,400       $  63,800
                                                       =============== =============== ===============
</TABLE>

4.  Disposition

On July 20, 2003,  we completed  the sale of eight  company  restaurants  in the
Atlanta, Georgia market to an affiliate of an existing franchisee for $8,000,000
and recognized an immaterial gain in our consolidated statements of earnings. In
connection with the sale of these  restaurants,  we closed one restaurant in the
Atlanta market in June 2003. This transaction did not have a significant  impact
on our net earnings for fiscal 2003. Actual company restaurant sales included in
our   consolidated   financial   statements  for  the  nine   restaurants   were
approximately $10,300,000,  $18,300,000 and $18,900,000 for 2003, 2002 and 2001,
respectively.

5.  Impairment of Chevys Note Receivable

In 1999, we received a $6,000,000,  8% subordinated  note in connection with the
sale of the Rio Bravo concept to Chevys  Holdings,  Inc  ("Chevys") due in 2009.
The note  receivable  balance of  approximately  $8,800,000 and $8,600,000 as of
December  28, 2003 and December  29,  2002,  respectively,  is included in other
assets in our consolidated  balance sheets.  In June 2003,  Chevys announced the
sale of the majority of its  restaurants.  Subsequent  to the  announcement,  we
received Chevys' audited financial statements for the fiscal year ended December
31, 2002.  During the fiscal  quarter ended June 29, 2003, we fully impaired the
principal of approximately  $8,800,000. A charge for the impairment of this note
is included in our consolidated statements of earnings for the fiscal year ended
December 28, 2003. In October 2003,  Chevys Inc.  filed a voluntary  petition to
reorganize  under  Chapter 11 of the U.S.  Bankruptcy  Code. We no longer accrue
interest  receivable on this note and will record future interest income on this
note only upon the receipt of any related cash payments.

                                      F-13
<PAGE>


6.  Receivables

Receivables are comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 28,        December 29,
                                                                               2003                2002
                                                                         -----------------   -----------------
      <S>                                                                  <C>                 <C>
      Franchise royalty, advertising and trade receivables.............     $     25,595        $     24,011
      Credit card receivables..........................................            6,212               4,724
      Franchise fee receivables........................................              318                 418
      Other............................................................            3,942               1,028
                                                                         -----------------   -----------------
                                                                                  36,067              30,181
      Less allowance for bad debts.....................................            4,117               4,089
                                                                         -----------------   -----------------
                                                                            $     31,950        $     26,092
                                                                         =================   =================
</TABLE>

The bad  debts  provision  totaled  $99,000  for  2003,  $795,000  for  2002 and
$1,253,000  for 2001. We had  write-offs  against the allowance for bad debts of
$71,000 during 2003, $1,049,000 during 2002 and $47,000 during 2001.

7.  Prepaid and Other Current Assets

Prepaid and other current assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 28,        December 29,
                                                                               2003                2002
                                                                         -----------------   -----------------
      <S>                                                                  <C>                 <C>
      Deferred income taxes............................................     $      5,858        $      4,601
      Deferred assets related to the captive insurance subsidiary......              657                 --
      Other............................................................            3,214               4,905
                                                                         -----------------   -----------------
                                                                            $      9,729        $      9,506
                                                                         =================   =================
</TABLE>

8.  Goodwill and Other Intangible Assets

We adopted  SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  effective
December 31, 2001 (see Note 2). In November of 2002 and 2003,  we completed  the
annual  goodwill  impairment test required under the provisions of SFAS No. 142.
We determined that no impairment  exists and as a result,  no impairment  losses
were recorded in 2002 or 2003.

The changes in goodwill are summarized below (in thousands):
<TABLE>
<CAPTION>

                                                                           December 28,        December 29,
                                                                               2003                2002
                                                                         -----------------   -----------------
      <S>                                                                  <C>                 <C>
      Carrying amount, beginning of the year...........................     $     88,715        $    78,614
      Goodwill acquired................................................           16,611             10,101
                                                                         -----------------   -----------------
                                                                            $    105,326        $    88,715
                                                                         =================   =================
</TABLE>

                                      F-14

<PAGE>

The effect of the adoption of SFAS No. 142 on net income and earnings per share
is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>

                                                                      2003              2002               2001
                                                                ----------------  ----------------   ----------------
   <S>                                                            <C>               <C>                <C>
   Net earnings, as reported...................................    $   93,558        $   83,027         $   64,401
   Goodwill amortization (net of income taxes).................           --                --               3,350
                                                                ----------------  ----------------   ----------------
   Net earnings, as adjusted..................................     $   93,558        $   83,027         $   67,751
                                                                ================  ================   ================

   Basic net earnings per common share, as reported............    $     1.69        $     1.49         $     1.16
   Goodwill amortization (net of income taxes).................          --                 --                0.06
                                                                ----------------  ----------------   ----------------
   Basic net earnings per common share, as adjusted............    $     1.69        $     1.49         $     1.22
                                                                ================  ================   ================

   Diluted net earnings per common share, as reported..........    $     1.64        $     1.46         $     1.13
   Goodwill amortization (net of income taxes).................          --                 --                0.06
                                                                ----------------  ----------------   ----------------
   Diluted net earnings per common share, as adjusted..........    $     1.64        $     1.46         $     1.19
                                                                ================  ================   ================
</TABLE>

Intangible  assets subject to  amortization  pursuant to SFAS No. 142 consist of
franchise interest and rights and are summarized below (in thousands):
<TABLE>
<CAPTION>

                                                                 December 28,          December 29,
                                                                     2003                  2002
                                                              ------------------    ------------------
<S>                                                             <C>                   <C>
Gross carrying amount......................................      $      6,371          $      6,371
Less, accumulated amortization.............................      $      5,234                 4,903
                                                              ------------------    ------------------
Net........................................................      $      1,137          $      1,468
                                                              ==================    ==================
</TABLE>


We expect annual  amortization  expense for all  intangible  assets for the next
five fiscal years to range from approximately $40,000 to $335,000.

9.  Other Assets
<TABLE>
<CAPTION>

Other assets are comprised of the following (in thousands):
                                                                           December 28,        December 29,
                                                                               2003                2002
                                                                         -----------------   -----------------
<S>                                                                        <C>                 <C>
      Nonqualified deferred compensation plan
        investments  (Note 17).........................................     $      5,872        $      2,425
      Liquor licenses..................................................            4,420               4,445
      Minority investment in unaffiliated company, at cost.............            2,250               2,250
      Notes receivable, net (Note 5)...................................            1,011               9,371
      Deferred financing costs, net....................................              297                 362
      Other............................................................            6,501               4,497
                                                                         -----------------   -----------------
                                                                            $     20,351        $     23,350
                                                                         =================   =================
</TABLE>

                                      F-15
<PAGE>


10. Property and Equipment

Property and equipment, net, is comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 28,       December 29,
                                                                               2003               2002
                                                                         -----------------  -----------------
      <S>                                                                  <C>                <C>
      Land.............................................................     $     77,701       $     74,415
      Buildings and leasehold improvements.............................          343,316            307,818
      Furniture and equipment..........................................          187,147            157,278
      Construction in progress.........................................            9,124             12,311
                                                                         -----------------  -----------------
                                                                                 617,288            551,822
      Less accumulated depreciation and capitalized
         lease amortization............................................          197,486            168,820
                                                                         -----------------  -----------------
                                                                            $    419,802       $    383,002
                                                                         =================  =================
</TABLE>

We had property under capitalized  leases of $4,055,000 at December 28, 2003 and
December 29, 2002 which is included in buildings and leasehold improvements.  We
had accumulated amortization of such property of $1,607,000 at December 28, 2003
and  $1,368,000  at December 29, 2002.  These  capitalized  leases relate to the
buildings on certain restaurant  properties.  The land portion of the restaurant
property leases is accounted for as an operating lease.

We had  depreciation  and capitalized  lease  amortization  expense  relating to
property  and  equipment  of  $40,663,000  for  2003,  $35,110,000  for 2002 and
$31,780,000  for 2001. Of these  amounts,  capitalized  lease  amortization  was
$239,000 during each of 2003, 2002 and 2001.

We lease certain of our restaurants. The leases generally provide for payment of
minimum annual rent, real estate taxes,  insurance and maintenance  and, in some
cases,  contingent  rent  (calculated  as a  percentage  of  sales) in excess of
minimum rent.  Total rental expense for all operating leases is comprised of the
following (in thousands):
<TABLE>
<CAPTION>

                                                            2003                2002                2001
                                                     ------------------  ------------------  ------------------
      <S>                                            <C>                 <C>                 <C>
      Minimum rent.................................    $       17,274      $       14,267      $       12,105
      Contingent rent..............................             1,297               1,115               1,054
                                                     ------------------  ------------------  ------------------
                                                       $       18,571      $       15,382      $       13,159
                                                     ==================  ==================  ==================
</TABLE>

The present value of  capitalized  lease  payments and the future  minimum lease
payments under  noncancelable  operating leases  (including  leases executed for
sites to be  developed  in 2004) as of  December  28,  2003 are as  follows  (in
thousands):
<TABLE>
<CAPTION>

                                                                            Capitalized          Operating
                                                                              Leases              Leases
                                                                         ------------------  ------------------
      <S>                                                                  <C>                <C>
      2004.............................................................     $        741        $     18,863
      2005.............................................................              767              17,958
      2006.............................................................              794              17,370
      2007.............................................................              822              17,541
      2008.............................................................              851              17,117
      Thereafter.......................................................            5,863             126,637
                                                                         ------------------ ------------------
      Total minimum lease payments.....................................            9,838        $    215,486
                                                                                            ==================
      Less amounts representing interest...............................            5,630
                                                                         ------------------
      Present value of minimum lease payments..........................     $      4,208
                                                                         ==================
</TABLE>

                                      F-16
<PAGE>


11. Long-Term Debt

Long-term debt,  including  capitalized lease  obligations,  is comprised of the
following (in thousands):
<TABLE>
<CAPTION>

                                                                            December 28,        December 29,
                                                                                2003                 2002
                                                                         ------------------  ------------------
     <S>                                                                   <C>                 <C>
    Unsecured revolving credit facility; interest at LIBOR
         plus 0.625% at December 28, 2003 and LIBOR plus 1.0% at
         December 29, 2002 or prime rate, due November 2005..........       $     15,000        $     48,000

    Capitalized lease obligations (Note 10)..........................              4,208               4,238
    Other............................................................              1,654                 325
                                                                         ------------------  ------------------
    Total long-term debt.............................................             20,862              52,563
    Less current portion of long-term debt...........................                192                 377
                                                                         ------------------  ------------------
    Long-term debt - less current portion............................       $     20,670        $     52,186
                                                                         ==================  ==================
</TABLE>

In November 2001, we refinanced our  then-current  credit  agreement and entered
into a three-year  $150,000,000  unsecured  revolving credit facility,  of which
$25,000,000  may be used for the  issuance of letters of credit.  At the time of
our  refinancing,  we repaid  $70,000,000  outstanding  under  our prior  credit
agreement.

In  December  2003,  we amended  our  credit  facility  to extend  the  facility
expiration  date to November  2005 and lower our fees and  interest  rate on any
LIBOR borrowings. The facility bears interest either at the bank's prime rate or
LIBOR plus 0.625%,  at our option.  We are  required to pay a commitment  fee of
0.125% on any unused  portion of the facility.  The interest rate and commitment
fee are subject to change based upon our leverage ratio.

The facility is subject to various covenants and restrictions which, among other
things,  require the  maintenance  of  stipulated  fixed  charge,  leverage  and
indebtedness  to  capitalization   ratios,  as  defined,  and  limit  additional
indebtedness  and capital  expenditures  in excess of  specified  amounts.  Cash
dividends  are  limited to  $10,000,000  annually.  The  facility  is subject to
standard  other terms,  conditions,  covenants,  and fees.  We are  currently in
compliance with the covenants contained in our credit agreement.

As a result of the  refinancing  in 2001, we wrote-off the remaining  balance of
the deferred  financing  costs related to our prior agreement and terminated our
interest  rate swap  agreements.  The interest  rate swap  termination  costs of
$4,470,000  and the  write-off of deferred  financing  costs of  $1,976,000  are
reflected in other expense in the 2001 consolidated statement of income.

As of December 28, 2003, borrowings of $15,000,000 and standby letters of credit
totaling  $12,002,000 were outstanding  under our $150,000,000  revolving credit
facility.

Maturities of long-term debt,  including  capitalized lease  obligations  ending
during the years indicated, are as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                                                                              <C>
     2004.................................................................................        $      192
     2005.................................................................................            15,215
     2006.................................................................................               258
     2007.................................................................................               262
     2008.................................................................................               293
     Thereafter...........................................................................             4,642
                                                                                               ----------------
                                                                                                  $   20,862
                                                                                               ================
</TABLE>

                                      F-17
<PAGE>


12. Loss and Loss Adjustment Reserve Related to Captive Insurance Subsidiary

On  September  20,  2002,  we formed  Neighborhood  Insurance,  Inc.,  a Vermont
corporation  and a  wholly-owned  subsidiary,  as a captive  insurance  company.
Neighborhood   Insurance,   Inc.   was   established   to   provide   Applebee's
International,  Inc. and qualified  franchisees  with workers'  compensation and
general  liability  insurance.   Applebee's  International,   Inc.  and  covered
franchisees  make premium payments to the captive  insurance  company which pays
administrative  fees and insurance  claims,  subject to individual and aggregate
maximum claim limits under the captive insurance company's reinsurance policies.
Franchisee   premium  amounts  billed  by  the  captive  insurance  company  are
established based upon third-party  actuarial  estimates of ultimate  settlement
costs for incurred claims and administrative  fees. The franchisee  premiums are
included in other  franchise  income  ratably over the policy year.  The related
offsetting expenses are included in cost of other franchise income. Accordingly,
we do not expect  franchisee  participation in the captive  insurance company to
have a material impact on our net earnings.

As of December  28,  2003 we have  included in our  consolidated  balance  sheet
approximately  $10,000,000 of assets restricted for the payment of claims,  held
primarily in cash equivalent investments,  and approximately $1,000,000 in other
restricted  assets.  In  addition,  we  have  recorded  current  liabilities  of
approximately  $11,000,000 in loss and premium  reserves  related to the captive
insurance subsidiary.

Our activity in the loss and loss adjustment reserve,  which includes Applebee's
International,  Inc. and participating  franchisees,  is summarized in the table
below (in thousands):
<TABLE>
<CAPTION>

                                                                            December 28,      December 29,
                                                                                2003              2002
                                                                         -----------------  -----------------
     <S>                                                                   <C>                <C>
    Net balance, beginning of the year...............................       $     1,044        $       --
    Incurred related to:
         Current year................................................            13,369              1,044
         Prior year..................................................               219                --
                                                                         -----------------  -----------------
         Total.......................................................            13,588              1,044
                                                                         -----------------  -----------------
    Paid related to:
         Current year................................................             3,182                --
         Prior year..................................................               443                --
                                                                         -----------------  -----------------
         Total paid..................................................             3,625                --
                                                                         -----------------  -----------------
    Balance, end of the year.........................................       $    11,007        $     1,044
                                                                         =================  =================
</TABLE>

Loss  reserve  estimates  are  established  based  upon  third-party   actuarial
estimates of ultimate  settlement costs for incurred claims using data currently
available.  The reserve  estimates  are  regularly  analyzed and  adjusted  when
necessary.  Unanticipated  changes in the data used to determine the reserve may
require us to revise our estimates.

Deferred policy  acquisition costs include premium taxes,  fronting fees and net
commissions and are deferred and amortized over our fiscal year. Accordingly, we
did not have any deferred policy  acquisition  costs recorded as of December 28,
2003. As of December 29, 2002 we had $759,000 of  acquisition  expenses  payable
that were included in the loss reserve and unearned  premiums related to captive
insurance subsidiary in the consolidated balance sheet.

                                      F-18
<PAGE>


13. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are comprised of the following
(in thousands):
<TABLE>
<CAPTION>

                                                                            December 28,        December 29,
                                                                                2003                2002
                                                                         ------------------  ------------------
      <S>                                                                  <C>                 <C>
      Compensation and related taxes....................................    $     38,313        $     28,688
      Gift cards........................................................          24,121              21,197
      Insurance.........................................................           5,926               8,123
      Rent..............................................................           5,908               5,113
      Sales and use taxes...............................................           5,528               4,812
      Other.............................................................          16,841              14,271
                                                                         ------------------  ------------------
                                                                            $     96,637        $     82,204
                                                                         ==================  ==================
</TABLE>

14. Income Taxes

We, along with our subsidiaries,  file a consolidated federal income tax return.
The income tax provision consists of the following (in thousands):
<TABLE>
<CAPTION>

                                                                    2003             2002             2001
                                                               ---------------  ---------------  ---------------
    <S>                                                         <C>              <C>              <C>
    Current provision:
         Federal...........................................      $    45,544      $    39,136      $    36,571
         State and local...................................            5,088            4,677            5,449
    Deferred provision (benefit)...........................            1,995            3,296           (4,520)
                                                               ---------------  ---------------  ---------------
    Income taxes...........................................      $    52,627      $    47,109      $    37,500
                                                               ===============  ===============  ===============
</TABLE>

The deferred  income tax  provision  (benefit) is comprised of the following (in
thousands):
<TABLE>
<CAPTION>

                                                                    2003             2002             2001
                                                               ---------------  ---------------  ---------------
    <S>                                                         <C>              <C>             <C>
    Depreciation...........................................      $     2,964      $       829      $    (3,201)
    Other..................................................             (969)           2,467           (1,319)
                                                               ---------------  ---------------  ---------------
    Deferred income tax provision (benefit)................            1,995            3,296           (4,520)
    Deferred income taxes related to change in
         unrealized gain on investments....................              --                (9)             (15)
                                                               ---------------  ---------------  ---------------
    Net change in deferred income taxes....................      $     1,995      $     3,287      $    (4,535)
                                                               ===============  ===============  ===============
</TABLE>

A  reconciliation  between  the  income  tax  provision  and  the  expected  tax
determined by applying the statutory federal income tax rates to earnings before
income taxes follows (in thousands):
<TABLE>
<CAPTION>

                                                                    2003             2002            2001
                                                               ---------------  ---------------  ---------------
    <S>                                                         <C>              <C>             <C>
    Federal income tax at statutory rates..................      $    51,166      $    45,548      $    35,665
    Increase (decrease) to income tax expense:
         State and local income taxes, net of federal
           benefit..........................................           3,450            3,247            3,127
         Employment related tax credits, net................          (3,216)          (2,871)          (2,582)
         Other..............................................           1,227            1,185            1,290
                                                               ---------------  ---------------  ---------------
    Income taxes...........................................      $    52,627      $    47,109      $    37,500
                                                               ===============  ===============  ===============
</TABLE>


                                      F-19
<PAGE>


The net current  deferred  income tax asset amounts are included in "prepaid and
other  current  assets" and the net  non-current  deferred  income tax liability
amounts are  included in "other  non-current  liabilities"  in the  accompanying
consolidated  balance sheets. The significant  components of deferred income tax
assets and  liabilities  and the related  balance sheet  classifications  are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                           December 28,          December 29,
                                                                               2003                  2002
                                                                         -----------------     -----------------
    <S>                                                                    <C>                   <C>
    Classified as current:
         Accrued expenses............................................       $     2,950           $     2,398
         Allowance for bad debts.....................................             1,364                 1,480
         Other, net..................................................             1,544                   723
                                                                         -----------------     -----------------
         Net deferred income tax asset...............................       $     5,858           $     4,601
                                                                         =================     =================


    Classified as non-current:
         Depreciation................................................       $   (11,700)          $    (6,007)
         Franchise deposits..........................................               571                   401
         Other, net..................................................             5,249                 2,978
                                                                         -----------------     -----------------
         Net deferred income tax liability...........................       $    (5,880)          $    (2,628)
                                                                         =================     =================
</TABLE>

15. Commitments and Contingencies

Litigation,  claims and disputes: We are involved in various legal actions which
include,  without limitation,  employment law related matters, dram shop claims,
personal injury claims and other such normal restaurant  operational matters. In
each instance,  we believe that we have meritorious  defenses to the allegations
made and we are vigorously defending these claims.

While the  resolution of the matters  described  above may have an impact on our
financial results for the period in which they are resolved, we believe that the
ultimate  disposition  of  these  matters  will  not,  individually  or  in  the
aggregate,  have a material  adverse  effect upon our  business or  consolidated
financial statements.

Lease guarantees:  In connection with the sale of restaurants to franchisees and
other parties, we have, in certain cases,  remained  contingently liable for the
remaining lease payments. As of December 28, 2003, the aggregate amount of these
lease payments totaled approximately $24,300,000. These leases expire at various
times throughout the next several years with the final lease agreement  expiring
in 2025.  The  buyers  have  indemnified  us from any  losses  related  to these
guarantees. We have not recorded a liability as of December 28, 2003 or December
29, 2002.

Franchisee guarantees:  In November 2003, we arranged for a financing company to
provide up to $75 million to qualified  franchisees for short-term loans to fund
remodel investments.  Under the terms of this financing program, we will provide
a limited  guarantee  pool for the loans advanced  during the three-year  period
ending December 2006. There were no loans  outstanding  under this program as of
December 28, 2003.

Severance  agreements:  We have severance and employment agreements with certain
officers and other senior executives providing for severance payments to be made
in the  event the  employee  resigns  or is  terminated  related  to a change in
control.  The agreements define the circumstances which will constitute a change
in control.  If the severance  payments had been due as of December 28, 2003, we
would have been required to make payments totaling approximately $11,400,000. In
addition,  we have severance and  employment  agreements  with certain  officers
which contain  severance  provisions  not related to a change in control.  Those
provisions would have required aggregate payments of approximately $6,800,000 if
such officers had been terminated as of December 28, 2003.

                                      F-20
<PAGE>


16. Stockholders' Equity

On September 7, 1994, our Board of Directors  adopted a Shareholder  Rights Plan
(the "Rights  Plan") and declared a dividend,  issued on September  19, 1994, of
one Right for each outstanding  share of our Common Stock (the "Common Shares").
Stockholders may exercise their Rights if any person or group acquires more than
15% (20% if an  Institutional  Investor,  as defined) of the outstanding  Common
Shares  or  makes a tender  offer  for  more  than 15% (20% if an  Institutional
Investor,  as defined) of our  outstanding  Common  Shares  unless the person or
group has  acquired  the shares or made the tender offer as part of a Qualifying
Offer (as defined). If such an event occurred, each Right entitles its holder to
purchase  for $75 the  economic  equivalent  of  Common  Shares,  or in  certain
circumstances,  stock of the acquiring entity, worth twice as much. This is true
for all stockholders except the acquiror. The Rights will expire on September 7,
2004 unless we redeem them earlier.  If we redeem the Rights before stockholders
can exercise them, we will pay $0.01 per Right.

Our Board of Directors  authorized  the  repurchase of up to  $55,000,000 of our
common  stock  through  2001,   subject  to  market  conditions  and  applicable
restrictions imposed by our then-current credit agreement. In February 2002, our
Board of Directors  extended the 2001  authorization  through 2002. Our Board of
Directors authorized  additional  repurchases of our common stock of $75,000,000
in May 2002 and $80,000,000 in December 2003. The 2002 authorization will expire
in May 2005. During 2003, we repurchased 1,679,500 shares of our common stock at
an average price of $29.63 for an aggregate cost of $49,800,000.  As of December
28, 2003, we had $99,800,000 remaining under these authorizations.

17. Employee Benefit Plans

Employee stock option plans:  During 1989,  our Board of Directors  approved the
1989 Employee  Stock Option Plan (the "1989 Plan") which  provided for the grant
of  both  qualified  and  nonqualified  options  as  determined  by a  committee
appointed by the Board of Directors. At the 1995 Annual Meeting of Stockholders,
the 1989  Employee  Stock  Option  Plan  was  terminated,  and the  1995  Equity
Incentive Plan (the "1995 Plan") was approved. The termination of the 1989 Stock
Option Plan did not affect existing options which were outstanding when the plan
was terminated.

Options  under the 1989 Plan were  granted  for a term of three to ten years and
were generally exercisable one year from date of grant. The 1995 Plan allows the
committee to grant stock options,  stock appreciation  rights,  restricted stock
awards,  performance  unit awards and  performance  share awards  (collectively,
"Awards") to eligible  participants.  The 1995 Plan  authorizes the committee to
issue up to 10,600,000  shares.  Options granted under the 1995 Plan during 1995
have a term of five to ten years and are generally  exercisable three years from
date of grant. Options granted under the 1995 Plan during 1996 through 1998 have
a term of ten years and are generally 50%  exercisable  three years from date of
grant,  25% exercisable  four years from date of grant, and 25% exercisable five
years  from date of grant.  Options  granted  under  the 1995 Plan  during  1999
through 2003 have a term of ten years and are  generally  exercisable  at either
one,  three or five  years  from the date of grant.  Subject to the terms of the
1995 Plan,  the committee has the sole  discretion to determine the employees to
whom it  grants  Awards,  the size and  types of the  Awards,  and the terms and
conditions of the Awards.

                                      F-21
<PAGE>

During 1999,  our Board of Directors  approved the 1999 Employee  Incentive Plan
(the  "1999  Plan")  which  allows the  committee  to grant  nonqualified  stock
options,  stock  appreciation  rights,  restricted stock,  performance units and
performance  shares  to  eligible  participants.  The 1999 Plan  authorizes  the
committee to issue up to 1,649,250  shares.  Options granted under the 1999 Plan
have a term of ten years and are generally  exercisable  one, two or three years
from the date of  grant.  Under  all  three  plans,  the  option  price for both
qualified and nonqualified  options cannot be less than the fair market value of
our common  stock on the date the  committee  grants the  options.  In 2003,  we
ceased granting options under this plan.

All three plans permit the committee to grant  performance  shares.  Performance
shares  represent  rights to receive our common stock,  cash or any  combination
thereof,  based  upon  certain  performance  criteria.  In 2000,  the  committee
approved  performance  share  plans  which  have  a  one-year  and a  three-year
performance  period. In 2001 and 2002, the committee approved  performance share
plans with a three-year  performance period. We recorded compensation expense of
$2,667,000  in 2003,  $865,000  in 2002 and  $926,000  in 2001  related to these
grants.  These amounts were based on the market price of our common stock at the
end of each fiscal year.

We account  for all three  plans in  accordance  with APB  Opinion  No. 25 which
requires us to recognize  compensation cost based on the excess, if any, between
the  quoted  market  price of the stock at the date of grant  and the  amount an
employee must pay to acquire the stock. Under this method, we have recognized no
compensation cost for stock option awards.

Transactions relative to all three plans are as follows:

<TABLE>
<CAPTION>
                                               1999 Plan                     1995 Plan                     1989 Plan
                                     ----------------------------- ------------------------------- -----------------------------
                                                       Weighted                        Weighted                      Weighted
                                                        Average                        Average                       Average
                                       Number of       Exercise        Number of       Exercise      Number of       Exercise
                                        Options          Price          Options         Price         Options         Price
                                     -------------- -------------- ---------------- -------------- -------------- --------------
  <S>                                 <C>               <C>         <C>                <C>           <C>             <C>
  Options outstanding at
     December 31, 2000............       376,847         $12.47       4,369,454         $11.97         246,600        $6.39
        Granted...................       807,375         $15.98       1,245,697         $15.75            --            --
        Exercised.................          --             --        (1,643,713)        $11.93        (170,775)       $6.49
        Canceled..................       (82,950)        $13.97        (269,724)        $11.88          (1,125)       $6.03
                                     --------------                --------------                  --------------
  Options outstanding at
     December 30, 2001............     1,101,272         $14.93       3,701,714         $13.27          74,700        $6.14
        Granted...................       543,875         $22.91         904,760         $22.04            --            --
        Exercised.................       (69,750)        $12.88        (448,668)        $12.02         (17,925)       $6.14
        Canceled..................      (145,349)        $16.58        (433,419)        $12.67            --            --
                                     --------------                --------------                  --------------
  Options outstanding at
     December 29, 2002............     1,430,048         $17.90       3,724,387         $15.62          56,775        $6.14
        Granted...................        89,500         $24.38         964,510         $26.04            --            --
        Exercised.................      (204,101)        $12.76      (1,005,248)        $12.17         (52,600)       $6.14
        Canceled..................      (131,987)        $19.03         (26,078)        $23.00            --            --
                                     --------------                --------------                  --------------
  Options outstanding at
     December 28, 2003............     1,183,460         $19.15       3,657,571         $19.26           4,175        $6.14
                                     ==============                ==============                  ==============
  Options available for grant at
     December 28, 2003............       162,439                      2,481,060                           --
                                     ==============                ==============                  ==============

</TABLE>

                                      F-22
<PAGE>

The number of options exercisable for each plan are summarized below:

<TABLE>
<CAPTION>


                                              1999 Plan                     1995 Plan                    1989 Plan
                                     ----------------------------- ------------------------------- -----------------------------
                                                       Weighted                        Weighted                      Weighted
                                                        Average                         Average                       Average
                                        Options        Exercise         Options        Exercise       Options        Exercise
                                      Exercisable       Price        Exercisable        Price       Exercisable        Price
                                     -------------- -------------- ---------------- -------------- -------------- --------------
      <S>                               <C>            <C>            <C>              <C>            <C>            <C>
      December 30, 2001............         --             --            992,685        $12.31         74,700         $6.14

      December 29, 2002............      65,250         $12.93         1,284,463        $12.62         56,775         $6.14

      December 28, 2003............      97,886         $12.84         1,060,598        $14.04          4,175         $6.14


</TABLE>

The  following  table  summarizes  information  relating to  fixed-priced  stock
options outstanding for all three plans at December 28, 2003:
<TABLE>
<CAPTION>

                                                  Options Outstanding                       Options Exercisable
                                    ------------------------------------------------  --------------------------------
                                                        Weighted
                                                         Average         Weighted                          Weighted
                                                        Remaining         Average                           Average
        Range of Exercise Prices         Number        Contractual       Exercise          Number          Exercise
                                      Outstanding         Life             Price        Exercisable          Price
       ---------------------------  ---------------  ---------------  --------------  ---------------  ---------------
       <S>                            <C>              <C>              <C>             <C>               <C>
        1989 Plan:
         $   6.13    to $   6.15           4,175        0.6 years        $   6.14            4,175         $   6.14
                                    ===============                                    ==============

        1995 Plan:
         $   9.27    to $   9.28          72,637        4.5 years        $   9.28           72,637         $   9.28
         $  11.08    to $  11.23          72,119        4.3 years        $  11.14           66,494         $  11.15
         $  12.30    to $  12.67         567,896        4.3 years        $  12.50          567,896         $  12.50
         $  13.44    to $  15.98         917,000        7.1 years        $  14.64          183,500         $  14.18
         $  20.20    to $  24.52       1,787,769        8.4 years        $  22.92          170,071         $  22.23
         $  25.41    to $  32.91         206,650        9.5 years        $  30.10             --               --
         $  34.19    to $  39.89          33,500        9.9 years        $  37.65             --               --
                                    ---------------                                    --------------
         $   9.27    to $  39.89       3,657,571        7.4 years        $  19.26        1,060,598         $  14.04
                                    ===============                                    ==============

        1999 Plan:
         $  10.33    to $  10.87           7,875        6.7 years        $  10.63            7,875         $  10.63
         $  12.30    to $  15.98         469,877        7.0 years        $  14.37           88,511         $  12.84
         $  17.07    to $  26.39         705,708        8.2 years        $  22.42            1,500         $  24.20
                                    ---------------                                    --------------
         $  10.33    to $  26.39       1,183,460        7.7 years        $  19.15           97,886         $  12.84
                                    ===============                                    ==============
</TABLE>

Restricted  stock awards:  During 2001,  2002 and 2003,  the  committee  granted
restricted stock awards to certain officers and key employees. These awards vest
over either a two-year or three-year  period. We recorded unearned  compensation
for the market value of the stock at the date of grant,  and we showed this as a
reduction  to  stockholders'  equity in the  accompanying  consolidated  balance
sheets.  We are  amortizing  unearned  compensation  ratably to expense over the
vesting period.  Accordingly,  we recognized compensation expense of $1,011,000,
$659,000 and $326,000 in 2003, 2002 and 2001, respectively.

Nonqualified  deferred compensation plan: In 2002, we entered into a rabbi trust
agreement to protect the assets of the nonqualified  deferred  compensation plan
for certain of our employees.  Each participant's  account is comprised of their
contribution, our matching contribution and each participant's share of earnings
or losses in the plan.  In  accordance  with  EITF No.  97-14,  "Accounting  for

                                      F-23
<PAGE>

Deferred  Compensation  Arrangements Where Amounts Are Held in a Rabbi Trust and
Invested,"  the  accounts  of the rabbi trust are  reported in our  consolidated
financial  statements.  As of December 28, 2003, our consolidated  balance sheet
includes  the  investments  in other  assets and the  offsetting  obligation  is
included  in other  non-current  liabilities.  The  deferred  compensation  plan
investments  are  considered  trading  securities and are reported at fair value
with the  realized  and  unrealized  holding  gains and losses  related to these
investments,  recorded in other income and the offsetting  compensation expense,
recorded in general and administrative expenses.

Employee retirement plans: During 1992, we established a profit sharing plan and
trust in accordance  with Section  401(k) of the Internal  Revenue Code. We make
matching contributions of 50% of employee contributions not to exceed 4.0% of an
employee's  compensation in any year. We make our contributions in shares of our
common stock.  Our  contributions  vest at the rate of 20% after the  employee's
second year of service,  60% after three years of service,  80% after four years
of service and 100% after five years of service.  During 1994, we  established a
non-qualified defined contribution  retirement plan for key employees.  In 2002,
we  ceased   contributions  to  this  plan  and  a  new  nonqualified   deferred
compensation plan was established (see nonqualified  deferred  compensation plan
above). Our contributions under these plans were $1,755,000 in 2003,  $1,697,000
in 2002 and $1,441,000 in 2001.

Employee  stock  purchase  plan:  During 1996, we  established an employee stock
purchase plan in accordance  with Section 423 of the Internal  Revenue Code. The
plan was approved at the 1997 Annual  Meeting of  Stockholders.  The plan allows
employees  to  purchase  shares of our common  stock at a 15%  discount  through
payroll  deductions.  The Board has  authorized  900,000 common shares under the
plan.  Employees  purchased 131,051 shares under this plan during 2003,  117,932
during 2002 and 93,810 shares during 2001.

18. Related Party Transactions

We had a policy which allowed us to loan  executives  money to be used to invest
in our stock to meet guidelines which require  executives to own certain amounts
of our stock.  This policy was  terminated in June of 2002 and no new loans will
be granted.  We had loans that were  granted  prior to the  termination  of this
policy  outstanding  for a total  of  $99,000  as of  December  29,  2002 to two
officers,  which  had  interest  rates  ranging  from  4.7%  to  6.8%  and  were
collateralized by the stock.  These loans were paid in 2003 and are reflected as
an increase in additional paid-in capital in our consolidated balance sheets.

As of December 28, 2003 and December 29, 2002, we had a loan outstanding with an
interest rate of 5% to an officer for moving related assistance in the amount of
$310,000. This officer made an interest and principal payment in March 2003. The
remaining principal of $210,000,  as well as accrued interest, is due in October
2004.

We  have a  minority  investment  in a  company  that  provides  us and  certain
franchisees  with  information   technology  services.   We  paid  approximately
$270,000, $490,000 and $430,000 in 2003, 2002 and 2001, respectively,  for these
services.


                                      F-24
<PAGE>

19. Quarterly Results of Operations (Unaudited)

The  following  presents  the  unaudited   consolidated   quarterly  results  of
operations  for 2003 and 2002.  During  the  second  quarter  of 2003,  we fully
impaired the principal and accrued  interest of  approximately  $8,800,000 for a
note  receivable.  All  amounts,  except per share  amounts,  are  expressed  in
thousands.
<TABLE>
<CAPTION>

                                                                                      2003
                                                         ---------------------------------------------------------------
                                                                              Fiscal Quarter Ended
                                                         ---------------------------------------------------------------
                                                           March 30,         June 29,      September 28,    December 28,
                                                             2003              2003            2003            2003
                                                         -------------    -------------   --------------   -------------
<S>                                                       <C>              <C>              <C>             <C>
Revenues:
    Company restaurant sales...........................    $208,410         $220,107         $222,429        $216,212
    Franchise royalties and fees.......................      27,163           27,331           27,594          27,745
    Other franchise income.............................       2,641            3,268            2,972           4,266
                                                         -------------    -------------   --------------   -------------
         Total operating revenues......................     238,214          250,706          252,995         248,223
                                                         -------------    -------------   --------------   -------------
Cost of company restaurant sales:
    Food and beverage..................................      54,846           57,040           57,200          56,260
    Labor..............................................      68,364           71,804           73,018          70,559
    Direct and occupancy...............................      50,561           54,386           55,869          55,861
    Pre-opening expense................................         221              334              576             819
                                                         -------------    -------------   --------------   -------------
         Total cost of company restaurant sales........     173,992          183,564          186,663         183,499
                                                         -------------    -------------   --------------   -------------
Cost of other franchise income.........................       2,500            3,173            2,837           4,187
General and administrative expenses....................      22,620           22,887           23,589          25,917
Amortization of intangible assets......................          99               92               87              86
Loss (gain) on disposition of restaurants and
    equipment..........................................         467              731              116            (615)
                                                         -------------    -------------   --------------   -------------
Operating earnings.....................................      38,536           40,259           39,703          35,149
                                                         -------------    -------------   --------------   -------------
Other income (expense):
    Investment income..................................         336              485              227             506
    Interest expense...................................        (521)            (518)            (330)           (364)
    Impairment of Chevys note receivable (Note 5)......          --           (8,803)              --              --
    Other income.......................................         205                1              395             919
                                                         -------------    -------------   --------------   -------------
         Total other income (expense)..................          20           (8,835)             292           1,061
                                                         -------------    -------------   --------------   -------------
Earnings before income taxes...........................      38,556           31,424           39,995          36,210
Income taxes...........................................      13,954           11,239           14,398          13,036
                                                         -------------    -------------   --------------   -------------
Net earnings...........................................    $ 24,602         $ 20,185         $ 25,597        $ 23,174
                                                         =============    =============    =============   ==============

Basic net earnings per common share....................    $   0.45         $   0.36         $   0.46        $   0.42
                                                         =============    =============   ==============   =============
Diluted net earnings per common share..................    $   0.43         $   0.35         $   0.45        $   0.41
                                                         =============    =============   ==============   =============

Basic weighted average shares outstanding..............      55,272           55,435           55,556          54,920
                                                         =============    =============   ==============   =============
Diluted weighted average shares outstanding............      56,677           57,032           57,184          56,675
                                                         =============    =============   ==============   =============
</TABLE>

                                      F-25
<PAGE>

<TABLE>
<CAPTION>

                                                                                   2002
                                                      ---------------------------------------------------------------
                                                                           Fiscal Quarter Ended
                                                      ---------------------------------------------------------------
                                                        March 31,        June 30,       September 29,    December 29,
                                                          2002             2002             2002             2002
                                                      -------------    -------------    -------------   -------------
<S>                                                   <C>              <C>              <C>             <C>
Revenues:
    Company restaurant sales.......................     $174,973         $178,893         $182,807        $187,943
    Franchise income...............................       24,840           25,484           26,033          25,823
    Other franchise income.........................          134              463              168           1,923
                                                      -------------    -------------    -------------   -------------
         Total operating revenues..................      199,947          204,840          209,008         215,689
                                                      -------------    -------------    -------------   -------------
Cost of company restaurant sales:
    Food and beverage..............................       47,407           47,073           47,765          50,179
    Labor..........................................       57,457           58,881           60,054          61,874
    Direct and occupancy...........................       42,872           44,291           47,009          47,595
    Pre-opening expense............................          335              305              792             542
                                                      -------------    -------------    -------------   -------------
         Total cost of company restaurant sales....      148,071          150,550          155,620         160,190
                                                      -------------    -------------    -------------   -------------
Cost of other franchise income.....................           60               93               99           1,921
General and administrative expenses................       19,320           19,923           20,118          22,292
Amortization of intangible assets..................          138               52               95              96
Loss (gain) on disposition of restaurants
    and equipment..................................          294              727              458            (341)
                                                      -------------    -------------    -------------   -------------
Operating earnings.................................       32,064           33,495           32,618          31,531
                                                      -------------    -------------    -------------   -------------
Other income (expense):
    Investment income..............................          397              381              346             374
    Interest expense...............................         (633)            (555)            (414)           (566)
    Other income...................................          101              482              513               2
                                                      -------------    -------------    -------------   -------------
         Total other income (expense)..............         (135)             308              445            (190)
                                                      -------------    -------------    -------------   -------------
Earnings before income taxes.......................       31,929           33,803           33,063          31,341
Income taxes.......................................       11,654           12,338           12,068          11,049
                                                      -------------    -------------    -------------   -------------
Net earnings.......................................     $ 20,275         $ 21,465         $ 20,995        $ 20,292
                                                      =============    =============    =============   =============
Basic net earnings per common share................     $   0.36         $   0.38         $   0.38        $   0.37
                                                      =============    =============    =============   =============
Diluted net earnings per common share..............     $   0.35         $   0.37         $   0.37        $   0.36
                                                      =============    =============    =============   =============
Basic weighted average shares outstanding..........       55,878           55,872           55,654          55,212
                                                      =============    =============    =============   =============
Diluted weighted average shares outstanding........       57,327           57,374           56,714          56,512
                                                      =============    =============    =============   =============
</TABLE>


                                      F-26
<PAGE>

20. Subsequent Event

In February  2004,  we reached an  agreement  with a  franchisee  to acquire the
operations  and  assets  of  10  Applebee's   restaurants  located  in  Southern
California  for  $13,400,000  in cash at  closing,  subject to  adjustment.  The
acquisition of the  restaurants is anticipated to close in the second quarter of
2004, subject to obtaining operating licenses and other third-party consents.


                                      F-27

<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX

   Exhibit
    Number                           Description of Exhibit
---------------  ---------------------------------------------------------------

     3.1         Certificate  of  Incorporation,  as amended,  of the Registrant
                 (incorporated  by reference to Exhibit 3.1 of the  Registrant's
                 Annual  Report on Form 10-K for the fiscal year ended  December
                 31, 1995).

     3.2         Restated and Amended By-laws of the Registrant.

     4.1         Shareholder  Rights Plan contained in Rights Agreement dated as
                 of September 7, 1994,  between Applebee's  International,  Inc.
                 and Chemical Bank, as Rights Agent  (incorporated  by reference
                 to Exhibit 4.1 of the  Registrant's  Annual Report on Form 10-K
                 for the fiscal year ended December 25, 1994).

     4.2         Amendment  dated  May  13,  1999  to  Shareholder  Rights  Plan
                 contained  in Rights  Agreement  dated as of September 7, 1994,
                 between  Applebee's  International,  Inc. and Chemical Bank, as
                 Rights Agent  (incorporated  by reference to Exhibit 4.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended June 27, 1999).

     4.3         Amendment  dated December 12, 2002 to  Shareholder  Rights Plan
                 contained  in Rights  Agreement  dated as of September 7, 1994,
                 between  Applebee's  International,  Inc. and Chemical Bank, as
                 Rights Agent  (incorporated  by reference to Exhibit 4.3 of the
                 Registrant's  Annual  Report on Form 10-K for the  fiscal  year
                 ended December 29, 2002).

     4.4         Certificate of Adjustment of Shareholder  Rights Plan contained
                 in Rights  Agreement  dated as of  September  7, 1994,  between
                 Applebee's  International,  Inc. and Chemical  Bank,  as Rights
                 Agent, as amended  (incorporated by reference to Exhibit 4.1 of
                 the  Registrant's  Quarterly Report on Form 10-Q for the fiscal
                 quarter ended September 29, 2002).

     4.5         Certificate of the Voting Powers, Designations, Preferences and
                 Relative  Participating,  Optional and Other Special Rights and
                 Qualifications of Series A Participating  Cumulative  Preferred
                 Stock  of  Applebee's  International,   Inc.  (incorporated  by
                 reference to Exhibit 4.2 of the  Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 25, 1994).

     10.1        Form  of  Applebee's  Development  Agreement.

     10.2        Form  of  Applebee's   Franchise  Agreement.

     10.3        Schedule of Applebee's  Development and Franchise Agreements as
                 of December 28, 2003.

     10.4        Revolving  Credit  Agreement  dated as of November 5, 2001,  as
                 amended.

                 Management   Contracts  and  Compensatory Plans or Arrangements

     10.5        1995  Equity  Incentive  Plan,  as  amended   (incorporated  by
                 reference to Exhibit 10.9 of the Registrant's  Annual Report on
                 Form 10-K for the  fiscal  year  ended  December  29,  2002 and
                 Exhibit 10.1 of the Registrant's  Quarterly Report on Form 10-Q
                 for the fiscal quarter ended March 30, 2003).

                                      E-1

<PAGE>



   Exhibit
    Number                           Description of Exhibit
---------------  ---------------------------------------------------------------


     10.6        Employee  Stock  Purchase  Plan,  as amended  (incorporated  by
                 reference to Exhibit 10.10 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 31, 2000,  Exhibit
                 10.2 of the Registrant's  Quarterly Report on Form 10-Q for the
                 fiscal quarter ended September 30, 2001 and Exhibit 10.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended March 30, 2002).

     10.7        1999 Management and Executive  Incentive Plan  (incorporated by
                 reference to Exhibit 10.13 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 26, 1999).

     10.8        Nonqualified   Deferred   Compensation  Plan  (incorporated  by
                 reference to Exhibit 10.12 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 29, 2002).

     10.9        1999  Employee  Incentive  Plan,  as amended  (incorporated  by
                 reference to Exhibit 10.11 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 30, 2001).

     10.10       2001 Senior Executive Bonus Plan  (incorporated by reference to
                 Exhibit  10.12 of the  Registrant's  Annual Report on Form 10-K
                 for the fiscal year ended December 30, 2001).

     10.11       Employment  Agreement,  dated  January 27, 1994,  with Lloyd L.
                 Hill   (incorporated  by  reference  to  Exhibit  10.4  of  the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended March 27, 1994).

     10.12       Severance and Noncompetition Agreement, dated January 27, 1994,
                 with Lloyd L. Hill  (incorporated  by reference to Exhibit 10.5
                 of the  Registrant's  Quarterly  Report  on Form  10-Q  for the
                 fiscal quarter ended March 27, 1994).

     10.13       Employment  Agreement  dated  August 7,  2002,  with  Steven K.
                 Lumpkin  (incorporated  by  reference  to  Exhibit  10.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended September 29, 2002).

     10.14       Memorandum of Understanding dated October 5, 2002 with Louis A.
                 Kaucic, as amended.

     10.15       Memorandum of  Understanding  dated May 12, 2003 with Robert T.
                 Steinkamp  (incorporated  by  reference  to Exhibit 10.1 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended September 28, 2003).

     10.16       Confidentiality, Non-Solicitation and Non-Competition Agreement
                 dated May 12, 2003 with Robert T.  Steinkamp  (incorporated  by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal quarter ended September 28, 2003).

     10.17       Memorandum of Understanding  dated June 6, with Larry A. Cates.

     10.18       Form of Indemnification Agreement (incorporated by reference to
                 Exhibit  10.29 of the  Registrant's  Annual Report on Form 10-K
                 for the fiscal year ended December 25, 1994).

     10.19       Schedule of parties to Indemnification Agreement.

                                       E-2


<PAGE>

   Exhibit
    Number                           Description of Exhibit
--------------- ----------------------------------------------------------------

     10.20       Previous Form of Change in Control  Agreement  (incorporated by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal  quarter  ended March 29, 1998) and
                 schedule of parties thereto.

     10.21       Previous Form of Change in Control  Agreement  (incorporated by
                 reference to Exhibit 10.23 of the Registrant's Annual Report on
                 Form 10-K for the fiscal  year  ended  December  27,  1998) and
                 schedule of parties thereto.

     10.22       Current Form of Change in Control  Agreement  (incorporated  by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the  fiscal  quarter  ended  July 1, 2001) and
                 schedule of parties thereto.

     21          Subsidiaries of Applebee's International, Inc.

     23.1        Consent of Deloitte & Touche LLP.

     24          Power of Attorney (see page 31 of the Form 10-K).

     31.1        Certification of Chairman and Chief Executive  Officer Pursuant
                 to SEC Rule 13a-14.

     31.2        Certification  of Chief Financial  Officer Pursuant to SEC Rule
                 13a-14.

     32          Certification of Chairman and Chief Executive Officer and Chief
                 Financial Officer Pursuant to 18 U.S.C. Section 1350.

                                      E-3